Analysis Of The Impact Of The RMB Internationalization On Chinese Corporates' Management Strategies:Smil Case Of Study

Since the end of the 2008 Global Financial Crisis,the internationalization of the RMB has become one of the main objectives in the policy agenda of the Chinese Government,who has been gradually relaxing the market regulations to promote the global usage of the currency in the settlement of trade and investment transactions.At the same time,the world has witnessed the rapid development of the country's "Going Global" strategy,created with the aim to encourage domestic companies to expand their operations to international markets,becoming solid multinationalsAt first glance,it seems logical to think that an international RMB could benefit companies that are "going out" by facilitating the procedures and diminishing the implied risks of conducting cross-border operations,but the real effects are still unclear.In this regard,it is a fact that as the internationalization of the RMB has become a headline topic in the last years,it has been well documented and studied by recognized scholars and institutions around the world.However,despite its relevance,no study links the importance of the RMB internationalization for the "Go Global" plan of domestic enterprises,nor analyzes the impact that the materialization of the currency globalization has on the formulation of the corporates' management strategiesTherefore,this study provides a new comprehensive and systematic analysis of the importance and impact of the incorporation of an international RMB in trade,treasury,risk management and market access strategies of Chinese companies that are opting for "going global",trying to identify how managers and financial directors can formulate and implement their plans,taking advantage of the benefits that the adoption of the RMB in the operational structure of the corporates could generate.In a nutshell,the primary objective relies on the identification and examination of the motives,the challenges and the opportunities that the adoption of the RMB brings to Chinese multinationals,aimed to create a research that serves as a guide in the process of making management decisions that involve cross-border business transactions Accordingly,the research is based on the construction of a theoretical framework with the collection and analysis of reliable theories,information and data,that later is tested and applied to a relevant case of studyUnder this context,to reach the settled objective,it is pertinent to begin with an examination of the development of the internationalization process of the RMB,identify the stage in which it is located and know what instruments and services are available to facilitate the international expansion of domestic companies For this reason,to create a useful framework,the study starts with an overview of China's foreign exchange market,covering its evolution,main characteristics,economic context,regulations and initiatives implemented to promote a global currency.Afterwards,an evaluation of the performance of the RMB as an international currency is presented,including the determinants and the three primary functions of an intermational currency:unit of account,medium of exchange and store of value.Here,the results showed that in fact,during the last years,the efforts made by the Government to internationalize the RMB and graduallyliberalize the market have had positive outcomes.Moreover,with the support provided by the implementation of policies and initiatives,in the last decade,the RMB has gone from being a rarely used currency to become the 5th most preferred instrument for global payments and reserves,improving its performance in the three primary functions that a global currency must fulfill to achieve this status.In the same way,the current account transactions have become fully liberalized,and even though the capital account remains under control,some relaxation on the regulations has been observed,where the free trade zones have played an essential role by working as laboratories of reform and testing the implications of a full liberalization.In addition,RMB forwards,options and swaps have come into the derivatives market,expanding the portfolio of financial products denominated in RMB that are promoted by offshore clearing centers whose number is also increasing around the world.What does this mean?That now the RMB can be included in the international expansion plan and internal operational structure of multinational companiesAs a next step,the study deeply explores the impact of the RMB intermationalization on Chinese corporates' management strategies,specifically those based on trade,treasury,risk management and market expansion.This analysis relies on the collection of information regarding the current context,opportunities,and challenges identified by domestic multinationals while using the RMB in these four type of strategiesLater the analysis outcomes are tested in a case of study made about SMIL,one of the company members of SAIC Motor Group,the largest automotive corporation in China and one of the 500 fortune companies.Furthermore,SMIL is responsible for the implementation of the Group's international vision,working as a platform that connects the global operations from different locations where SAIC has business.For the creation and analysis of this case of study,financial data gathering;two interviews;a survey answered by ten of the managers and financial directors of the company,it's four overseas affiliated companies,as well as its six overseas offices,were conducted.According to the results obtained,it was found that with the "Go Global" trend carried out by many Chinese companies,the use of the RMB as an operational currency represents an attractive opportunity for managers as It's usage not only facilitates and reduces the settlement of trade transactions cycle,by invoicing and paying in RMB,but at the same time it allows companies to take advantage of the avoidance of direct and indirect FX exposure(before,during and after the operations);the reduction of time and monetary costs;and the possible positive effects on pricing that could lead to a more competitive position in the market.Additionally,by incorporating the RMB in their treasury structures,corporates could benefit from broader and more flexible opportunities to allocate their funds through more efficient structures like RMB cash pooling,or opt for cheaper and stable funding strategies to conduct their Overseas Direct Investment operations,like loans denominated in RMB.Finally,even though currency acceptance,lack of adequate infrastructure and insufficient expert support prevail as the main obstacles to increase the currency usage by domestic multinationals,the expectations regarding the future development of the RMB as an international currency remain strong and optimist.This sentiment is supported by the increasing number of Chinese companies expanding their business and investing in international markets,which can contribute to increase the level of acceptance of the RMB.Additionally,the boost provided by Government policies and initiatives,especially the One Belt One Road and Made in China 2025;besides more market-oriented regulations,can lead to enhance and increase the market confidence and stabilize the value of the currency,and thus give support to its internationalization.Nonetheless,it is important to highlight that the financial institutions also should play a critical role to accelerate the global spread of the RMB's usage,by giving expert support and informing to their corporate clients about the market updates,RMB denominated services and products available,as well as expanding their services to new locations.