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The American Chamber of Commerce in India (<keyword id="583705" type="ORGANIZATION" weightage="100" keywordseo="AMCHAM">Amcham</keyword>) has expressed concern over the arrest of <keyword id="129103" type="COMPANY" weightage="100" keywordseo="Amway">Amway</keyword> India chief executive <keyword id="837418" type="PERSON" weightage="100" keywordseo="William-Pinckney">William Pinckney</keyword>. 
 "This unfortunate incident highlights the need for the government to amend the Prize Chits and Money Circulation Schemes (Banning) Act 1978 (<keyword id="2271948" type="COMPANY" weightage="100" keywordseo="PCMCS">PCMCS</keyword>) and calls for a systematic solution to the direct selling industry's operational challenges in India," Amcham said in a statement. 
 
Pinckney, who was initially arrested by Kerala Police in 2013 along with two directors of the company, was held again on May 27 by the Andhra Pradesh police in connection with a complaint, alleging unethical circulation of money, filed against the company under PCMCS. 
 
He was arrested in Gurgaon and brought to Kurnool in Andhra Pradesh. 
 
Amcham said Amway is a direct-selling, fast-moving consumer goods company that uses multilevel marketing to sell its products through independent distributors. "These distributors earn their income only from the sale of products or from the sale of products their groups make. No commissions are made for recruiting new distributors into the business. Hence, compensation under Amway’s sale and marketing plan is based solely on the sale of products," it said. 
 
"The Act, in its present form, is unable to distinguish genuine direct-selling companies from pyramid or Ponzi schemes. Like other countries, India needs to amend this act and create a conducive legal environment for the Industry," said Amcham India executive director Ajay Singh. 
 
Image: indiatimes

American Chamber of Commerce Concerned Over Amway India CEO’s
Arrest

<ul class="summary-list"><li>AmChams from four countries are calling on Biden to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.</li><li>The CPTPP is an outgrowth of the <a href="https://ustr.gov/trade-agreements/free-trade-agreements/trans-pacific-partnership/tpp-full-text">Trans-Pacific Partnership</a>, a 12-country trade agreement that was signed by President Obama in 2016.</li></ul>As <keyword id="11909682" type="UNKNOWN" weightage="60" keywordseo="president-biden" source="Orion">President Biden</keyword> heads to New Zealand next week to attend the Asia Pacific Economic Cooperation Leaders' Meeting, the American Chamber of Congresses from Singapore, Malaysia, Vietnam, and New Zealand are urging him to consider joining a sweeping international trade deal former President Trump <a href="https://ustr.gov/sites/default/files/files/Press/Releases/1-30-17%20USTR%20Letter%20to%20TPP%20Depositary.pdf">withdrew from in 2017. </a>The American Chamber of Congresses from Singapore, Malaysia, Vietnam, and New Zealand released a joint statement on Friday urging Biden to use the upcoming APEC event to announce his commitment to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The combined AmChams represent hundreds of American businesses across the <keyword id="11911497" type="UNKNOWN" weightage="60" keywordseo="apac" source="Orion">APAC</keyword> region. The current CPTPP is an outcropping of the <a href="https://ustr.gov/trade-agreements/free-trade-agreements/trans-pacific-partnership/tpp-full-text">Trans-Pacific Partnership</a>, a 12-country trade agreement signed by President Obama in 2016 but <a href="https://www.brookings.edu/blog/unpacked/2017/03/24/trump-withdrawing-from-the-trans-pacific-partnership/">never ratified by Congress.</a> Republicans - and some <a href="https://www.theguardian.com/business/2015/jan/20/barack-obama-trans-pacific-partnership-republicans">Democrats</a> - argued the TPP would move US jobs overseas and only benefit large corporations while increasing the US trade deficit.In his first week in office, Trump withdrew from the deal."We're going to stop the ridiculous trade deals that have taken everybody out of our country and taken companies out of our country, and it's going to be reversed," Trump said at the time, reported <a href="https://www.nytimes.com/2017/01/23/us/politics/tpp-trump-trade-nafta.html">The New York Times</a>. "I think you're going to have a lot of companies come back to our country."Following US withdrawal, the remaining 11 member states - Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam - <a href="https://www.reuters.com/article/us-trade-tpp-idUSKCN1GK0JM">signed</a> the renamed Comprehensive and Progressive Agreement for Trans-Pacific Partnership. Next week's APEC meeting would be an ideal time to announce a US recommitment to the agreement, the AmCham consortium said."Even after the United States withdrew from the agreement, the remaining countries kept the cornerstones of the agreement intact by including tough rules of origin, reducing tariffs, making supply chains more resilient, and agreeing on accession procedures for new candidates," it said in a statement. "Just as AmChams were the first US business associations to call for the Obama Administration to join TPP, as we saw first-hand the strategic and economic imperative to do so, the AmChams once again call on the Biden Administration to join the CPTPP, as the strategic and economic imperatives to do so are even greater now," Steven Okun, Senior Advisor at McLarty Associates and former Chair of AmCham Singapore, told Insider. The bid to have the US rejoin the agreement comes as <a href="https://www.cnbc.com/2021/09/27/analysts-on-chinas-bid-to-join-cptpp-strategic-competition-with-us.html">China formally applied</a> to join the CPTPP after several years of <a href="https://asia.nikkei.com/Politics/International-relations/Xi-says-China-will-consider-joining-TPP">President Xi Jinping expressing interest.</a>

American Chambers of Commerce across Asia are urging Biden to sign on to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership

<ul><li>American companies have started to warn they could see their revenues from China cut in half if the coronavirus outbreak isn't contained by summer. </li><li>Nearly half of respondents said they expect China revenue would fall this year if business cannot return to usual before April 30, the American Chamber of Commerce in China said.</li><li>Efforts to contain the respiratory infection COVID-19, which has <a href="https://www.who.int/docs/default-source/coronaviruse/situation-reports/20200226-sitrep-37-covid-19.pdf?sfvrsn=2146841e_2">killed more than 2,700</a> and spread to at least 37 countries, have triggered widespread restrictions on travel and commerce. </li><li><a href="https://www.businessinsider.com/?hprecirc-bullet" target="_blank" rel="noopener">Visit Business Insider's homepage for more stories</a>.</li></ul>American companies have started to warn they could see their revenues from China cut in half if the coronavirus outbreak isn't contained by summer, according to a survey released Thursday morning. Nearly half of respondents said they expect China revenue would fall this year if business cannot return to usual before April 30, the American Chamber of Commerce in China <a href="https://www.amchamchina.org/news/US-companies-significant-negative-business-impact-from-covid-19-revealed-survey-results">said</a> in the February 17-20 survey. One-fifth of the 169 companies said revenue losses could be greater than 50% if the outbreak extended through the end of August.Efforts to contain the respiratory illness COVID-19, which has <a href="https://www.who.int/docs/default-source/coronaviruse/situation-reports/20200226-sitrep-37-covid-19.pdf?sfvrsn=2146841e_2">killed more than 2,700</a> and spread to more than three dozen countries, have triggered widespread restrictions on travel and commerce. That has upended supply chains and hammered broader business operations, stoking <a href="https://markets.businessinsider.com/news/stocks/stocks-market-forecast-fall-bear-market-coronavirus-fears-rbc-possible-2020-2-1028946333">concerns</a> about a global economy that was already expected to slow in 2020. On Thursday, Goldman Sachs forecast that the coronavirus outbreak <a href="https://markets.businessinsider.com/news/stocks/stock-market-outlook-lower-no-profit-growth-coronavirus-goldman-sachs-2020-2-1028946208">could completely wipe out corporate earnings growth this year</a>. Greg Gilligan, the chairman of AmCham China, said there has been "a clear and significant negative impact" to member company operations, including through travel disruptions, reduced staff productivity, increased costs, significant drops in revenue, and more. But he added that it was unclear how long or severe the disruptions could last. "However, for most of our members, it is still too early to tell how significant the long-term impact will be," he said. China, the center of the outbreak, has slashed borrowing costs and pursued a slew of other stimulus measures in an attempt to soften the blow to its economy. In the US, the Federal Reserve said it would closely monitor COVID-19. Congress has also started discussions on an emergency spending package to contain the outbreak.

US companies say China revenues could drop by 50% as coronavirus spreads

<!DOCTYPE html PUBLIC "-//W3C//DTD HTML 4.0 Transitional//EN" "http://www.w3.org/TR/REC-html40/loose.dtd"><html><body><div class="KonaFilter image-container display-table"><div><div class="image on-image"></div></div></div>Footwear manufacturer Feelgoodz had every reason to believe its comfortable flip-flops, made from sustainable materials, would be a big hit in China. The footwear was already generating strong sales in five other countries, and China's growing middle-class was hungry for foreign goods - online sales of physical products in the country jumped a whopping 31.6% last year.The Raleigh, North Carolina-based company confidently placed its product on the Chinese mainland's Tmall shopping platform in April 2012 and waited for the orders to come in.And waited, and waited, and waited.After six months, a mere 50 pairs of the eco-friendly sandals were purchased, and sales fell quickly from that low point.What happened? Feelgoodz, like many other US companies, discovered that scaling the digital wall of China isn't as easy as it seems at first glance. Many firms have a "post it and they will come" strategy, believing that they need only put their 10 biggest sellers online, and China consumers will flock to snap them up. But succeeding in China requires a deep understanding of this unique marketplace.<h2>A different world</h2>The 2016 China Business Climate Survey Report, from the American Chamber of Commerce in China (AmCham China), found that companies remain optimistic on domestic market growth potential, but they feel less welcome and are increasingly frustrated by China's unclear laws, inconsistent regulations, and required licenses that are hard to obtain.These diverse challenges underscore the need to understand the market deeply before jumping in. "China isn't really one country, but 30-plus provinces with distinct characteristics," says Usha C. V. Haley, professor of management, West Virginia University, College of Business &amp; Economics and author of <a href="http://www.chinesetao.com/home.htm" target="_blank">The Chinese Tao of Business</a>.In the same way, ecommerce in China can be a world of its own, with many subtle differences from other areas in the globe. In the United States, for example, many companies operate independent ecommerce sites. In China, more than 75% of ecommerce is conducted through <a href="http://www.bloomberg.com/news/articles/2016-04-07/asos-closes-china-business-under-weight-of-alibaba-competition" target="_blank">Alibaba</a>'s Tmall and Taobao's site.Digital consumers in China are savvy and demanding. The challenge companies face, then, is what to do after they get on the sites, such as differentiating themselves from the sea of competitors with unique products to shoppers."As for getting folks to your site, that's another issue," says Lou Hoffman, head of a communications consultancy that entered China in 1999, and now operates offices in Shanghai and Beijing. "Baidu dominates search in China. Unlike Google, there isn't much of a line between natural/organic search and paid search on Baidu. As a result, what a company knows about search engine optimization (SEO) for Google has little relevance in China. It also places a premium on the paid side of search."<h2>Localizing products</h2>The AmCham China survey found that an important part of a company's Chinese game plan is adapting its services and products to the market. More than nine in 10 of respondents in the AmCham China survey said that innovation for China would be important to their company's future growth. Indeed, 40% of respondents reported that more than half of their China revenues come from products that were locally designed, developed, or at least tailored to Chinese requirements.For example, Pfizer found that health and wellness products are often given as gifts. As a result, it sold gift sets on Tmall Global on Singles Day - an online bargain shopping event. Blue Nile, an online jeweler, found that, unlike in the US, couples in China usually typically want matching wedding bands, so its website needed to be able to display men's and women's bands together.Given such cultural variations, foreign companies - whether large or small -who enter China successfully start small and build on that success, Haley says. "They go step-by-step, with incremental expansion, rather than start with grandiose plans."Large companies build infrastructure. Pfizer, for example, has a team of about 17 in Shanghai dedicated to its ecommerce business. "There's something to be said for spending time on the ground in China," Hoffman says. "You can read books. You can talk to people on the phone. You can meet people who have worked there. But you need to actually spend time in China to get a sense of the market."<h2>Working with a guide </h2>For mid-size companies, one way to get their feet on the ground quickly and firmly is to work with a third-party logistics provider (3PLs) that can help navigate the nuances of operating a supply chain, warehousing and distributing system in an area where practices are dramatically different than in many other parts of the world.A competent 3PL with a first-rate global trade management group can steer a mid-size company through the web of complex government regulations, infrastructure, customs, and other issues, so their operations can run more smoothly. For example, companies that don't have a deep understanding of China's data management practices might inadvertently and unintentionally provide inaccurate product counts, causing them to draw unwanted attention from the authorities. A 3PL can help avoid those kinds of issues in a country, which, in Haley's words, "invented bureaucracy and is rampant in hidden costs."China isn't an easy market to crack. But for companies that approach it strategically, smartly, and with the right partner, the payoff can be substantial.To learn more, go back to the <a href="http://www.businessinsider.com/unlocking-logistics" target="_blank">Unlocking Logistics Hub</a>.This post is sponsored by UPS. To read more from <a href="http://bs.serving-sys.com/serving/adServer.bs?cn=trd&amp;mc=click&amp;pli=19004858&amp;PluID=0&amp;ord=%5Btimestamp%5D" target="_blank">UPS, click here</a>.<div class="KonaFilter image-container display-table"><div><div class="image"></div></div></div></body></html>Find out <a href="http://www.businessinsider.com/sponsor-posts">more about Sponsor Content</a>.

Scaling the digital wall of China

<div class="KonaFilter image-container display-table"><div><div class="image on-image">Carolyn Kaster/APPresident Donald Trump on Monday signed a bill authorizing $716 billion in <keyword id="6354810" type="UNKNOWN" weightage="100" keywordseo="defense">defense</keyword> spending, which includes a pay raise for US troops.</div></div></div><ul class="summary-list"><li>President Donald Trump's trade war with China started off with tariffs and talk of trade deficits but quickly moved to addressing deep US national security concerns about Beijing spying and stealing technology. </li><li> In 2018, the US's trade deficit with China ballooned to $344 billion, but China allegedly steals about $600 billion in technology from the US every year. </li><li>In the next great war, the country that masters artificial intelligence, quantum computing, and the internet of things, will essentially bring guided-missile destroyers to a sailboat fight. </li><li>For this reason, most insiders and China watchers agree that Beijing's forced technology transfer must end, and Trump is actually having some success on that front. </li></ul>President Donald Trump's Thursday chat with Chinese Vice Premier Liu He at the White House revealed something that insiders have long known: Trade figures like the deficit are red herrings, and the real fight between China and the US is over the future of tech and, by extension, who will win the next world war. While Trump does drone on about the trade deficit, his trade war with China also seeks to fundamentally restructure the relationship between the world's two economic superpowers. And the key here isn't trade stats or even economics broadly, but national security. In the next great war, the country that masters artificial intelligence, quantum computing, and the internet of things, will essentially bring guided-missile destroyers to a sailboat fight.Read more: <a href="https://www.businessinsider.com/trump-steel-tariffs-have-nothing-on-chinas-intellectual-property-theft-2018-3" target="_blank" rel="noopener">Trump's tariffs are nothing compared with the looming war over intellectual property theft with China</a>With that in mind, here's what the White House said Trump and Liu talked about (emphasis added):In the White House's own words, technology transfer and intellectual property take precedence over the trade deficit. Three of the first five points from the readout explicitly mention tech transfer, illegal or coerced. And rightly so. Between January and October of 2018, the <a href="https://www.census.gov/foreign-trade/balance/c5700.html" target="_blank" rel="noopener">US's trade deficit with China ballooned to $344 billion</a>, but that just means the US buys more from China than China buys from the US, which you'd expect when a richer country buys goods from a poorer one. But in 2017, two retired senior Department of Defense officials <a href="https://www.nytimes.com/2017/08/15/opinion/china-us-intellectual-property-trump.html">wrote in The New York Times that Chinese intellectual property theft cost the US as much as $600 billion a year</a>, calling it "the greatest transfer of wealth in history." Chinese spies have stolen F-15 fighter and the Space Shuttle, and attempted to pry secrets about America's "most significant weapons," the authors wrote.China seeks to transform itself into the world's leading superpower by rocketing past the US in economic and military strength, and it seeks to do so on the back of stolen technology. Chinese President Xi Jinping enshrined this vision in his "Made In China 2025" push that sought to turn the country into a tech superpower. But as tariffs hammered China's economy, Xi took a rare face-losing defeat and walked back some of those claims in a sign that Trump's "tariff first, ask IP questions later" strategy bore fruit. Read more: <a href="https://www.businessinsider.com/chinas-xi-backpedals-on-made-in-china-2025-us-trade-huawei-pressure-2018-12" target="_blank" rel="noopener">China's Xi takes humiliating loss to US on trade and Huawei - but Trump could be getting played</a>And unlike Trump's wailing about trade deficits, which he seems to go alone, the world has united behind Trump on the fight to stop China's theft of next-generation technologies. <h2>China pressuring US companies on sensitive military tech</h2><div class="KonaFilter image-container display-table float_right"><div><div class="image on-image">Public DomainSome think China's J-31 looks like a copy of the US's F-35, which the FBI accused China of stealing plans for in 2014.</div></div></div>Ken Jarrett, the President of the American Chamber of Commerce in Shanghai, told Business Insider that while US companies operating in China don't like the tariffs and uncertainty from the trade war, many agree with Trump on technology transfers."Most US companies are careful about what intellectual property they bring to China. Some simply do not bring their best intellectual property to China," Jarrett told Business Insider. "While few companies will publicly state that they experience pressure to transfer technology, 21% of respondents to the AmCham Shanghai Business Climate Survey (July 2018) reported having felt such pressure. In the aerospace sector 44% of companies felt such pressure, as did 41% of chemicals companies, affirming the US administration's concern about this pay-to-play tactic in technology-based industries."When a company that deals with sensitive military information like RAND Corp sends people to China, it warns them against bringing their own personal electronics. Among US business officials that visit China, horror stories about people rummaging around their hotel rooms <a href="https://www.businessinsider.com/fbi-warns-of-chinese-spies-nationals-in-us-how-to-protect-yourself-2018-6" target="_blank" rel="noopener">while they're out or even in the shower</a> have become common.China's spying reportedly ranges well beyond top military systems like the F-35 stealth fighter and the Patriot missile to Silicon Valley, where Chinese agents are attempting to steal trade secrets from the US's tech industry.See more: <a href="https://www.businessinsider.com/san-francisco-is-a-nirvana-for-chinas-main-intelligence-agency-2018-7">San Francisco is a 'nirvana' for China's main intelligence agency -- and the center of an intensifying spy war </a>China vigorously denies all of this. Huawei, the tech company accused by multiple nations of spying and recently by the US of bank fraud and violating sanctions, tried to assuage fears about its connection to the Chinese state by saying it would deny any government request to access its data.<div class="KonaFilter image-container display-table"><div><div class="image on-image">REUTERS/Joshua RobertsActing Attorney General Matthew Whitaker, Commerce Secretary Wilbur Ross (L) and FBI Director Christopher Wray hold a <keyword id="6355005" type="UNKNOWN" weightage="60" keywordseo="news">news</keyword> conference to announce indictments against China's Huawei Technologies Co Ltd, several of its subsidiaries and its chief financial officer Meng Wanzhou, in a pair of cases accusing the company of everything from bank and wire fraud to obstructing justice and conspiring to steal trade secrets from T-Mobile US Inc., at the Justice Department in Washington, U.S., January 28, 2019.</div></div></div>Read more: <a href="https://www.businessinsider.com/huawei-cfo-meng-wanzhou-indicted-fraud-ip-theft-security-concerns-2019-1" target="_blank" rel="noopener">US calls Huawei and CFO Meng Wanzhou national-security threats, indicts company and exec on fraud and IP theft charges</a>But <a href="https://www.canada.ca/en/security-intelligence-service/corporate/publications/china-and-the-age-of-strategic-rivalry/chinas-intelligence-law-and-the-countrys-future-intelligence-competitions.html" target="_blank" rel="noopener">by Chinese law, this is plainly illegal</a>. China can enlist the help of any of its citizens or companies to further the party's goals, and one of those goals, the US and <keyword id="6356001" type="UNKNOWN" weightage="60" keywordseo="international">international</keyword> experts assess, is displacing the US as the world's superpower. While most businesses disagree with Trump's tariffs and dislike the uncertainty the trade war has brought, <a href="https://www.businessinsider.com/hassett-us-companies-china-trade-war-tariffs-like-apple-2019-1" target="_blank" rel="noopener">Trump's own officials have admitted the trade war will bring short-term losses</a> in hope of a long-term restructuring. Because, as leading academics and military professionals repeatedly stress, the current US-China business relationship has blurred the lines between economic and military competition, and without intervention, those are both contests the US would lose. <div class="margin-top"> <h3>NOW WATCH: <a href="https://www.businessinsider.com/boogers-snot-eat-nose-unhealthy-science-virus-bacteria-2019-1">There are serious health reasons why you shouldn't eat your boogers</a></h3> <div> </div> </div>

Trump's trade war isn't about trade anymore, it's plainly about beating China in the next great war

<div class="image-container float_right" style="width:400px"><div class="image"></div><a href="http://www.gettyimages.com/detail/news-photo/people-stand-in-front-of-a-billboard-featuring-the-late-news-photo/56397246">Guang Niu/Getty Images</a></div><keyword id="1334" type="COUNTRY" weightage="60" keywordseo="China">China</keyword> is the world's second largest economy, yet it exercises tremendous capital control including restrictions on its currency, the <keyword id="144512" type="COMPANY" weightage="60" keywordseo="renminbi">renminbi</keyword>. 
Chinese officials have previously said that they want to make the currency fully <a href="http://www.businessinsider.com/china-yuan-convertibility-2011-9">convertible by 2015</a>.
Some, like Deutsche Bank's <a href="http://www.businessinsider.com/deutsche-bank-the-renminibi-is-the-worlds-next-reserve-currency-2011-12">Alan Cloete</a>, have made bolder claims. He expects the renminbi to become a major reserve currency in the next decade and that it could begin to threaten the greenback. And Berkley economist Barry Eichengreen has said it could account for 15 percent of global currency reserve holdings around the end of the decade.
More conservative estimates say full convertibility is at least 10 – 15 years away. But China's currency has come a long way in the last two decades.
The Use of FECs
People screaming for the internationalization of the renminbi often forget that until the mid-1990s, foreigners in China could only purchase goods and services with <a href="http://chovanec.wordpress.com/2012/10/20/boao-review-renminbi-faces-obstacles-as-an-international-currency/">foreign exchange certificates (FECs)</a>. These were denominated in <keyword id="62260" type="COMPANY" weightage="60" keywordseo="Yuan">yuan</keyword> but sold at a premium and, as expected, led to a thriving black market.
FECs were phased out in 1995 as Beijing began to open up.
Once FEC's were phased out, China could open up its current account and use the renminbi to settle trade. "This opened the door for China to make the Renminbi convertible for current account (i.e., trade) transactions the following year," wrote <a href="http://chovanec.wordpress.com/2012/10/20/boao-review-renminbi-faces-obstacles-as-an-international-currency/">Patrick Chovanec,</a> professor at Tsinghua University.
But China continued to exercise strict capital controls establishing 'B shares' that were denominated in U.S. dollars in Shanghai and Hong Kong dollars in Shenzhen, and that only foreigners could invest in until 2001. "In effect, the inability to freely buy and sell Renminbi was used as a firewall to insulate China’s financial markets from the outside world," writes Chovanec.

<div class="image-container float_right click-to-enlarge" style="width:300px"><div class="image"><a title_source="Lo Ka Fai/China Photos/Getty Images" title_caption="" class="zoomin" href="http://static1.businessinsider.com/image/5125334feab8eaaf4c000003-960/bank-of-china-1.jpg"></a></div><a href="http://www.gettyimages.com/detail/news-photo/residents-line-up-outside-a-branch-of-the-bank-of-china-to-news-photo/81948275#">Lo Ka Fai/China Photos/Getty Images</a></div>Three ways to think of the Renminbi 
The country has come a long way since then. In understanding a currency's role in the global monetary system, Lei (Sandy) Ye, a PhD candidate in Economics at Cornell University, and Cornell professor Eswar Prasad say we have to look to three aspects of the currency.
In a paper titled "<a href="http://www.brookings.edu/research/reports/2012/02/renminbi-monetary-system-prasad">The Renminbi's Role in the Global Monetary System</a>," they say we need to consider:
<ol>
<li>Internationalization, i.e. its use in settling cross-border trade and its use as an international medium of change.</li>
<li>Capital account convertibility, or the capital controls (in the form of taxes or laws) in place to restrict the flow of capital (cash, stock, foreign direct investment and so on) in and out of the country.</li>
<li>Reserve currency, i.e. is the renminbi held by other central banks.</li>
</ol>
China took a significant step in internationalizing its currency when it allowed companies all over the world to <a href="http://www.china-briefing.com/news/2012/03/20/china-allows-companies-to-settle-trade-in-rmb.html">settle trade in renminbi</a> early last year. But the renminbi is clearly underutilized as seen in this chart from SWIFT:
<div class="image-container click-to-enlarge" style="width:581px"><div class="image"><a title_source="SWIFT" title_caption="" class="zoomin" href="http://static1.businessinsider.com/image/51255c7eeab8ea572a000000-960/screen shot 2013-02-20 at 6.31.53 pm.jpg"></a></div><a href="http://www.swift.com/resources/documents/RMB_White_paper_internationalisation.pdf">SWIFT</a></div>
Beijing has also signed bilateral currency swap agreements with countries that it imports commodities from like the UAE, Malaysia, Turkey and Australia.
The development of the offshore renminbi market was also a significant step in that direction — more on that later.
In terms of its capital account, <a href="http://www.businessinsider.com/xi-jinping-will-reform-china-2012-12">China has been rolling out reforms</a> since the 18th Party Congress. These include expanding the Renminbi Qualified Foreign Institutional Investor scheme (RQFII) which allows qualified investors to channel offshore yuan into bonds and mainland stock, or the Renminbi Qualified Foreign Limited Partner Program (RQFLP), which allow offshore yuan to be invested in private equity. It also allowed more renminbi-based IPOs in Hong Kong.
And countries like Chile, Tanzania, and Nigeria have <a href="http://www.businessinsider.com/china-renminbi-convertibility-2012-3">diversified their foreign reserves</a> to include the renminbi.
But this isn't enough. "Chinese policymakers don't appear willing to open up the capital account fully," Diana Choyleva of Lombard Street Research told Business Insider.
"The process of renminbi internationalization has as its main aim to establish the framework for increased Chinese borrowing from abroad, as the ability of the state to use the banks as an ATM has been exhausted. No wonder that under the schemes introduced so far, the emphasis has been on increasing capital inflows, not capital outflows.
The Offshore and Onshore Renminbi Market 
As China began to open up its economy, it wanted its currency used in the international market to settle trade and financial transactions, without, however, fully opening up its capital account.
Hong Kong, which has served as an international hub for mainland China, naturally happened to be a great place for an offshore renminbi (CNH) market. Singapore, Taiwan, and London have since developed their own offshore renminbi markets.
It began with the development of personal renminbi banking business in 2004 when renminbi deposits were allowed in Hong Kong, according to <a href="http://www.google.com/url?sa=t&amp;rct=j&amp;q=&amp;esrc=s&amp;source=web&amp;cd=1&amp;ved=0CDIQFjAA&amp;url=http%3A%2F%2Fwww.chathamhouse.org%2Fsites%2Fdefault%2Ffiles%2F0811pp_rossijackson.pdf&amp;ei=RQMlUcbBD_Ky0QH04ICQCA&amp;usg=AFQjCNESjHnWmv1X_RlmzuZPqwZTuAuz5Q&amp;bvm=bv.42661473,d.dmQ">Vanessa Rossi and William Jackson at Chatham House</a>.
They go on to say, Bank of China (Hong Kong) was designated as the sole offshore renminbi clearing bank some time in 2004. Renminbi deposits continued to climb, especially once the bond market was established in 2007. Bonds issued in renminbi outside the mainland were dubbed dim sum bonds. In 2010, McDonald's became the first foreign (non-financial) company to issue a dim sum bond.
Renminbi deposits continued to pick up with the launch of the trade settlement scheme in 2009 – 2010.

<div class="image-container float_right" style="width:300px"><div class="image"></div><a href="http://www.apimages.com/OneUp.aspx?st=k&amp;kw=renminbi&amp;showact=results&amp;sort=relevance&amp;intv=None&amp;sh=10&amp;kwstyle=and&amp;adte=1338919295&amp;pagez=60&amp;cfasstyle=AND&amp;rids=929eae2a03c947539e65a3f175411de3&amp;dbm=PY2011&amp;page=1&amp;xslt=1&amp;mediatype=Photo">AP Images</a></div>The crucial thing about the offshore renminbi (referred to as CNH here on), is that it doesn't fluctuate within a tight band like the onshore renminbi (CNY) and is free of Beijing's control in that regard.
In settling trade in renminbi, many companies accept CNY payments from Chinese importers and change that into dollars at the more attractive offshore rate. And borrowing costs are much cheaper in the CNH bond market than in mainland China. <a href="http://www.ft.com/intl/cms/s/0/7a4e3f26-1ce2-11e0-8c86-00144feab49a.html#axzz1BG7FVQsE">From the Financial Times:</a>
"Fervent demand for renminbi from international investors has driven down rates in Hong Kong and thereby created incentives for companies considering using the renminbi for trade or financing. 
Foreign exporters have cottoned on to the fact that the renminbi-dollar exchange rate is at a premium in Hong Kong compared with the mainland. To arbitrage the two markets, these companies accept renminbi as payment from Chinese importers, then swap the cash into dollars at the more attractive offshore exchange rate."
The expectation that the renminbi would appreciate has been a key factor driving demand for CNH. But Chinese state media has warned that a <a href="http://english.peopledaily.com.cn/90778/8084876.html">sharp renminbi appreciation is unlikely</a> in 2013. Moreover, the gap between the CNH and CNY has narrowed.
How does the internationalization of the renminbi help companies?
In a paper titled "<a href="http://www.google.com/url?sa=t&amp;rct=j&amp;q=&amp;esrc=s&amp;source=web&amp;cd=1&amp;ved=0CDYQFjAA&amp;url=http%3A%2F%2Fweb.resource.amchamchina.org%2Fcmsfile%2F2013%2F01%2F30%2F3e31bc6ca73bb39eb3b9ca4559beb443.pdf&amp;ei=XfQkUa_pLpC10QGJuIHACQ&amp;usg=AFQjCNHb_J6Uzy-o4As_PHGNLy7tacsHvQ&amp;bvm=bv.42661473,d.dmQ">The Curious Case Of RMB Internationalization</a>," Oliver Meng Rui and Andy Bodrog point out that Chinese companies, and companies that trade with China, can both benefit from the internationalization of the renminbi.
<div class="image-container click-to-enlarge" style="width:580px"><div class="image"><a title_source="AmCham China" title_caption="" class="zoomin" href="http://static1.businessinsider.com/image/5124f49f69beddab2c000000-960/screen shot 2013-02-20 at 11.08.30 am.jpg"></a></div><a href="http://www.google.com/url?sa=t&amp;rct=j&amp;q=&amp;esrc=s&amp;source=web&amp;cd=1&amp;ved=0CDYQFjAA&amp;url=http%3A%2F%2Fweb.resource.amchamchina.org%2Fcmsfile%2F2013%2F01%2F30%2F3e31bc6ca73bb39eb3b9ca4559beb443.pdf&amp;ei=XfQkUa_pLpC10QGJuIHACQ&amp;usg=AFQjCNHb_J6Uzy-o4As_PHGNLy7tacsHvQ&amp;bvm=bv.42661473,d.dmQ">AmCham China</a></div>
Should China liberalize?
But China still has a way to go before its currency is fully convertible. To start with, it needs to do more of the same: i.e. use it to settle trade and invoicing and get foreign central banks to add it to their reserves.
The currency would also have to be <a href="http://www.foreignpolicy.com/articles/2012/10/18/to_renminbi_or_not_to_renminbi?wp_id_n=471285039">used in transactions</a> that aren't directly related to China for it to be considered a truly global currency.
It needs to improve its "financial infrastructure," according to Meng Rui and Bodrog, by "installing more advanced payment systems and adopting international standards such as SWIFT, which allows inter-bank messaging in a transparent and reliable international system."
Of course the biggest problem is getting China used to the idea of an internationalized renminbi. "There are many segments in China (such as the Ministry of Commerce, who represent manufacturers, and so on) who may like an internationalized renminbi in principle but oppose its effects (such as a more volatile and probably stronger currency)," Moody's Alastair Chan told Business Insider.
While investors like <a href="http://www.businessinsider.com/interview-jim-rogers-china-2012-4">Jim Rogers have said the biggest mistake on the part of Chinese policymakers</a> is maintaining a non-convertible currency, there is something to be said about the caution Beijing is exercising.
Liberalizing the capital account too quickly risks causing large capital outflows. Liberalizing interest rates to limit such risks, would raise borrowing costs for its state-owned enterprises (SOEs) that still contribute a significant amount to GDP. A fully-convertible currency would also be exposed to exchange rate shocks.
"It's probably prudent to be careful in this as there are many cases of financial crises after capital account liberalization," warns Moody's Chan.

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