Subnational origin of China’s financial outreach: Local authorities in renminbi’s regionalization

China’s footprint was largely absent in East Asia’s financial integration for most of the recent decades. Japan, and financial centers such as Singapore and Hong Kong, have been the forerunners of financial development and integration; the Asian Financial Crisis of the late 1990s galvanized ASEAN/East Asian collaborations in response to financial shocks. It was not until the mid-2000s China emerged as a key player in shaping and crafting the region’s financial order. Most notably these include the ascent of renminbi as a currency increasingly used in regional trade, finance and investment; the opening of domestic capital markets for regional investors; and the creation of many onshore special zones where pilot measures of financial liberalization are introduced to facilitate capital flows with neighboring economies. Whereas these trends have been extensively reviewed by economists and researchers of East Asian political economy, they tend to focus on the market development and/or the roles of the Chinese central government (and its ministries) in policy and decision making. Little studies to date have examined the inputs of subnational authorities in shaping the central-level liberalizing agendas and the way these are implemented. This omission, however, leaves an important lacuna in understanding the domestic political basis of China’s regional financial outreach. Through a systematic analysis of the regionalization of renminbi and the associated liberalizing measures that dramatically ease cross-border capital flows between China and the region’s economies, this paper shows how local governments have shaped the liberalizing agendas of China’s central authorities, and sought political supports from the central ministries, financial interests and sometimes their foreign counterparts. Local governments, in other words, are not mere implementation agent of central initiatives, they are also indispensible interface and active player in China’s endeavors of financial regionalism in East Asia.