Troy Stangarone is the Senior Director for Congressional Affairs and Trade at the Korea Economic Institute of America, and he was the fourth and final speaker at GBD's July 24 colloquium on "Finance and China's Soft Power."  He was also the only speaker to shine a spotlight on one of China's more important bilateral relationships, the one with the Republic of Korea.  In this entry we'll use the shorthand of "Korea."
There were four discrete elements to Mr. Stangarone's presentation.  Yes, he talked about Korea and the use of China's currency, the yuan or RMB.  He also discussed Korea's participation in the China-led Asian Infrastructure and Investment Bank, as well as the nature of Korea's trading relationship with China as compared to Korean trade with the U.S., Japan, and the EU.

Korea and the RMB Internationalization.  Korea began allowing direct RMB trade with China as of December 1, 2014, and it is encouraging Korean companies to settle their accounts in RMB where that makes sense.  The amount of Korea-China trade that is denominated in RMB rather than dollars is still very small.   As of this past March, "only about 2 percent of Korea's exports and 1 percent of its imports ... were actually settled in RMB rather than dollars," Mr. Stangarone said.

 
As for the policies of Korean companies, one of the chaebols or Korean conglomerates, Samsung, has said it will settle its transactions with its affiliates in China in RMB rather than in dollars.

The Asia Infrastructure Investment Bank.  Korea was one of the last countries to join the Asian Infrastructure Investment Bank, but it has joined.  In his preliminary remarks on the subject, Mr. Stangarone raised the question of why such a bank is needed, given that we live in a world that seems to be awash in relatively cheap capital.  As for the governance concerns about the bank that were raised by the United States, Mr. Stangarone said Korea had been sensitive to those.  "But by the time the U.K. and others had started to join, China had sort of moved significantly on these issues" and Korea felt comfortable in joining. 

Then too, as an infrastructure bank, it is an institution that is bound to play to Korea's strengths.  "Korea is the six largest country in terms of international construction in the world," Mr. Stangarone said.  As if to illustrate the point, he mentioned that the tallest building in the world - the Burj Khalifa in Abu Dhabi

In short, when Korea looks at AIIB, it sees opportunity.     "Much of Korea's construction work," Mr. Stangarone said, "has been in the Middle East."

"Not only will this - [the AIIB] - help Korea gain more of a foothold in Southeast Asia, but there are expectations that there are about $8.2 billion dollars over the next ten years in terms of ITC infrastructure investments that will be needed."

With neither Japan nor the United States participating in the AIIB, Korea should be able to win more of the business associated with information technology infrastructure projects than it otherwise might have, Mr. Stangarone suggested.

Korea's Trade with China.  We will end this summary where Mr. Stangarone began his July 24 presentation, that is, with a note on the size of Korea's trade with China.  If one looks only at the overall statistics, the first impression is that Korea's trade with China swamps its trade with the United States.  According to Korean Customs, Korea's total trade with the United States-including both exports and imports-was under $116 billion in 2014.  By contrast, Korea's total trade with China last year was over $235 billion  For the record, Korea has a surplus with both countries.

As Mr. Stangarone explained, headlines numbers like that are "not necessarily reflective of reality."  The reason is that "today 55 percent of Korea's trade with China is still processing trade."

What you find after a little digging and a few calculations, Mr. Stangarone said, is that "by final destination products ... the United States still does more trade with Korea than China does and that, in terms of importance, China, the EU, Japan, and the United States are all essentially roughly equivalent in terms of trading partners for Korea." 

The EU and the U.S., of course, both have free trade agreements with Korea.  So now does China.  The negotiations were concluded last November.  The deal was formally signed in Seoul on June 1, and it will go into effect later this year.  How much difference will it make?  Time will tell.  Mr. Stangarone did note that, in terms of tariff lines, the Korea-China agreement is less comprehensive than either Korea's deal with the EU or KORUS, its agreement with the United States.  And there are some big exclusions.  "You have a situation [in the Korea-China agreement] where 30 percent of the tariffs by value in agriculture and fisheries are permanently excluded from the agreement," he said.

Mr. Stangarone returned to the Korea-China FTA for the concluding note of his presentation.  He said:

"The Korea-China FTA is important in that it moves China further along the line of liberalization, but that is something ... separate from the United States presence and economic influence in Korea."

They say a week is a long time in politics.  Well, this past week in the life of the RMB was a pretty long time too.  First there was the eye-popping 2 percent devaluation on August 11.  That was followed by the intervention by the People's Bank of China to keep the RMB from falling further.  The first and, to a lesser extent the second, rattled markets around the world and raised lots of questions. 

One question, or rather set of questions, dealt with how those developments will affect China's drive to make the RMB a truly international currency.  More immediately, will last week's drama undercut China's efforts to convince the IMF that the RMB should be included in the SDR basket?  As noted in earlier entries, that decision is expected later this year, probably in November.  The point here is simply that China continues to press its case for including the yuan in the SDR basket.  It is in that light, for example, that we read today's Xinhua story with the headline, "RMB adjustment not intended to stimulate exports: HSBC," and others in a similar vein, such as "Asia must be ready for RMB's increasing role: Malaysian central bank governor."

But then again, if a week is a long time, three months is an eternity.

Stangarone on the record is a link to the mp3 recording of the GBD colloquium of July 24, 2015, on "Finance and China's Soft Power."  This includes the full presentation from Troy Stangarone, which was the source for today's quote. 

From Korean Customs is a link to trade date from the Korea Customs Service. This was the source of the statistics above on Korea's overall merchandise trade with China and with the U.S.

Adjustment and Asia Must are links to the two Xinhua stories mentioned above.

Press Line on August 11th.  This is a link to a statement issued by the IMF in the wake of the initial, August 11, devaluation.  It included the statement:

Slower Better Growth is a link to a write-up on the IMF's most recent report on the Chinese economy.

August 11 takes to you to the last TTALK Quote on the developments concerning the value of the RMB and China's efforts to increase its use as an international currency.