As the results of the U.S. presidential election becomes clearer, the risk of increased strategic friction between the U.S. and China has eased to a certain extent. The signing of the Regional Comprehensive Economic Partnership (RCEP) after many years of negotiations also means that China has obtained a certain amount of external market space. On the whole, the external environment of China's economic and financial market development has changed, which has brought a certain period of relaxation to China's economic development and its financial market. ANBOUND's senior collaborating scholar Xu Weihong pointed out that the U.S.-China circumstance after the election is still crucial for future asset prices. The signing of the RCEP is good news for China. Coupled with the transfer of power in the United States, China will have more room to deal with its domestic bad debts and internal structural problems in the next six months. Therefore, within a period of time, the focus of the financial market for China will be on constructing an "inner circulation".

Judging from the recent changes in the RMB exchange rate and the trend of the U.S. dollar, on November 16 the central parity of the RMB rose by 237 basis points to 6.6048. At 16:30 (Beijing time) of the same day, the onshore RMB exchange rate against the U.S. dollar rose by 0.48% to 6.5721, while the exchange rate of offshore RMB against the U.S. dollar rose by 0.39% to 6.5679. The dollar index futures fell to around 92.713, a drop of about 8% from the May high. The improvement of the RMB exchange rate reflects the international market's optimism towards China's capital market and economic prospects, with the same sentiment towards the U.S.-China strategic friction. Some international investment banks also propose to increase the allocation of RMB assets to promote the effective allocation of global assets. For some time to come, the continued expansion of the U.S. fiscal deficit and the continued increase in U.S. dollar liquidity may lead to a phased appreciation of the RMB exchange rate. Although the RMB exchange rate may be overvalued now, this will still promote the development of China's financial market, and push for a good strategic timing in the internationalization of RMB.

ANBOUND has previously pointed out that there is a "window period" on the long-term global trend and that it will take 5 to 8 years for the global transformation and structural restructuring of the world economy to cover China's "14th Five-Year Plan" period, which will take place during the term of the new U.S. President Joe Biden. It is also during this period that China may face relatively mild and predictable strategic competition. Under such circumstances, the development of China's financial market will also be in a relatively stable buffer period. It will take some time for the U.S. to simmer down the disputes and internal divisions brought about by the election. For China, this is also a short intermittent period. All these are beneficial to the stability and development of China's financial market.

With regard to the overseas listing of Chinese concept stocks and Chinese companies, the new U.S. government's attitude is still uncertain, and China may still face the threat of being "decoupled" from U.S. regulatory agencies. This means that the "outer circulation" structure of the financial market dominated by the U.S. dollar in the past is facing reorganization, and we will see a new "outer circulation" dominated by the RMB. Under the anticipation of RMB appreciation, the new "outer circulation" will become highly attractive to international capital, which is conducive to the expansion of the RMB offshore market as well as attracting external funds into China's onshore market. Of course, the signing of the RCEP will bring potential market space to the internationalization of theRMB and the "outer circulation" of China's financial market. With the strengthening of regional trade, cooperation in the financial field will also deepen, and this presents a rare opportunity for China's financial market. However, it is also necessary for China to prevent the excessive adjustment of the RMB exchange rate in order to realize the orderly flow of capital.

At the same time, given the relative stability and relaxation of the external environment, what China needs to resolve next is the "inner circulation" of the financial market. This includes the acceleration of capital market reform, the elimination of financial system risks, and the reform of financial institutions and the financial system. In particular, the impact of the COVID 19 pandemic on China is short term temporary interruption of the production and demand cycle, but in the longer term it accelerated the exposure of China's structural contradictions. Various financial risks are also further accumulated. Although China's economic recovery is relatively satisfactory, the increase of non-performing assets of financial institutions to the default of corporate debts is worsening under the circumstances of internal changes. This involves both the cycle of industrial structure adjustment and the inherent contradictions of the long-term economic structure, which need to be properly resolved by accelerating structural reforms. As far as the financial market itself is concerned, some long-standing problems and shortcomings require bold breakthroughs in institutional construction.

Regarding China's macroeconomic policies, the report of the 19th National Congress of the Communist Party of China proposed the dual-approach framework of monetary and macroprudential policies. This means that the core of monetary policy is still emphasizing on stability, and maintaining the balance between total control and risk prevention, where the regulation of monetary policy will be leaning towards structural adjustment. Therefore, it will be more difficult for China's financial assets to "inflate" through stimulus policies in the future. Rather, it would be necessary for China to return to the fundamentals of assets, and the role of value discovery in the financial market will become stronger. Although China's 14th Five-Year Plan does not mention the financial market specifically, it is still important in terms of technological innovation, factor market reform, expanding domestic demand, enhancing consumption potential, achieving green development, and promoting further opening. As ANBOUND has previously mentioned, the financial market is a crucial area of China's structural reforms. If China's economy is to achieve a "dual circulation", it will need to rely on the financial market's construction of a "dual circulation" of RMB assets led by "inner circulation".

Final Analysis Conclusion:

With the current changes in the internal and external environment in mind, and based on the new development pattern of "dual-circulation", it will become extremely important for China to seize the current calm period and accelerate the construction of "inner and outer circulations" in China's financial market, in order for the country to realize the adjustment of strategic opportunities in the "window period" of anti-globalization.