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G20 summit reveals China's commitment to world economy

China will see the issuance of the first bonds denominated in Special Drawing Rights (SDR) on Wednesday in the country's interbank bond market.

Worth 500 million SDR units, the bonds issued by the International Bank for Reconstruction and Development, a unit of the World Bank, will be first SDR bonds issued for more than 30 years. They will provide a channel for foreign investors to increase RMB exposure and allow domestic investors to access foreign currencies within the domestic bond market.

Compared to bonds denominated in a single currency, SDR bonds face smaller exchange and interest rate risks. With the approach of RMB entry to the SDR basket in October, China has already started to update its foreign exchange reserves, international balance of payments and international investment positions in SDR.

SDR bonds will not only inject energy to the international monetary system, but are a way to open up the domestic market.

Li Huiyong, chief macro-economics analyst with Shenwan Hongyuan Securities, said that measures related to the SDR will increase the appeal of the Chinese market to foreign capital, attesting to China's G20 commitment to an "innovative, invigorated, interconnected and inclusive world economy".

"The more contribution China makes to the world economy, the greater its responsibility," said Li.


The global community expects China to take the lead in drawing the blueprint of world economic recovery at the upcoming G20 summit. The blueprint, with innovation as its focus, will help the world economy to emerge from recession, said Zhang Haibing.

With the aim of robust, balanced and sustainable growth, China wants G20 members to agree to avoid competitive devaluation of currencies.

The G20 finance ministers and central bank governors have also agreed to "use all policy tools -- monetary, fiscal and structural -- individually and collectively" to stimulate growth.

A report from the HSBC Global Research expects some medium term agenda to emerge, such as reforms of the global monetary system, green finance and infrastructure investment.

This year's G20 summit has an unprecedented emphasis on structural reform as a way to re-balance fiscal and monetary measures.

Huang Wei of the Chinese Academy of Social Sciences believes China wants the G20 to agree on structural reform. G20 financial officials have already prioritized areas and come up with guiding principles for structural reform.

"Countries can choose from the priorities according to their own needs," Huang added.


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