Off-shore RMB business key support to HK
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From the initial basic renminbi business such as deposit and exchange to the first renminbi-denominated securities listed in the Hong Kong stock market, the off-shore renminbi business in Hong Kong has been heading steadily in the past seven years.
With the capital pool gradually in shape and the investment products more diversifying, the fledgling off-shore market in Hong Kong marks a further step towards the renminbi internationalization.
Hong Kong, at the same time, has also benefited from the off-shore business as its capital market develops rapidly, taking the chance to grab the trillion-yuan commercial opportunities. It is widely believed that the off-shore renminbi business is the crucial point to support Hong Kong as a financial center in the future.
FOR THE MOMENT: CEMENTING ROLE OF OFF-SHORE CENTER
The renminbi business was officially launched in Hong Kong in February 2004 to facilitate cross-boarder tourist spending, raising the curtain on the city's off-shore renminbi business. In July 2007, the first renminbi-denominated bonds were sold in Hong Kong, and in June 2009, Hong Kong became the only pilot city for renminbi settlement of cross-border trade outside of the Chinese mainland.
A revised Settlement Agreement on the Clearing of Renminbi Businesses was signed in July 2010, erasing the restrictions on Hong Kong banks in opening renminbi accounts and providing related services to those qualified. One month later, Hong Kong's clearing banks were allowed to start participating in the interbank bond market in the Chinese mainland.
Based on these symbolic breakthroughs, the off-shore renminbi business in Hong Kong is growing steadily amid the various policies introduced by the People's Bank of China and the Hong Kong Monetary Authority (HKMA).
The HKMA data showed that the renminbi deposit in Hong Kong advanced 10.7 percent from a month ago to 451.4 billion yuan (about 69.4 billion U.S. dollars) as of March this year, while the total remittance of the renminbi for cross-border trade settlement jumped 32 percent to 115.4 billion yuan in March from that in February.
Peter Pang, the deputy chief executive of HKMA said in late March that the off-shore renminbi market in Hong Kong is gradually formed, driven by the mutual interaction among renminbi trade settlement, financing and asset management.
Chief Executive of Hong Kong Exchanges and Clearing Charles Li said earlier that in the formation stage of the off-shore renminbi market, the commercial benefits will be relatively limited, considering the products with low yield such as insurance and mutual funds. However, it is helpful for encouraging the financial institutions to develop new renminbi products or services, and as the infrastructure is improving, more products will find their way into the markets, laying the solid foundation for Hong Kong to be the off-shore renminbi business center.
IN THE FUTURE: SEIZING TRILLION-YUAN OPPORTUNITY
As Li said, with the development of off-shore renminbi market entering into the fast track since the beginning of 2011, the renminbi deposit will reach a substantial amount, pushing Hong Kong's financial market into the growth stage of the off-shore renminbi business.
At this stage, the market will begin to see a visible accumulation of renminbi liquidity, with growth in product range, scale and yield profiles, and trading in the secondary market will also become more active. Products in two key areas will be worth watching for: trade finance and exchange traded products.
Those high-yield products will effectively attract more off-shore investors to accept and use the renminbi, then investing the currency back in the Hong Kong market, thus increasing the renminbi liquidity in Hong Kong.
Li said the business expansion will directly benefit the brokers and stock exchanges, as well as Hong Kong's overall economy.
The chief economist of Deutsche Bank Greater China Jun Ma expects the value of renminbi assets in Hong Kong to reach 700 billion yuan in 2012, when the average rate of return of renminbi products will post a noticeable increase.
Li estimates the scale of Hong Kong's off-shore renminbi market will exceed two trillion yuan in the near future as the development of renminbi internationalization brings a revolutionary change on Hong Kong.
"This is a business opportunity calculated in trillions," Li said.
The off-shore renminbi market will grow bigger and bigger along with the trade development in China, and not only Hong Kong wants to get a piece of the cake. The renminbi business in Singapore has been growing fast recently, with the banks there now preparing for the off-shore renminbi-denominated bond products.
Other financial hub such as London, is also eyeing on the renminbi pie. Mayor of the City of London Alderman Bear said in Shanghai in mid-April that they hope and have confidence to be another off-shore renminbi center as soon as possible, citing "developing several off-shore trading centers can help to enlarge the renminbi market."
Facing the competitive rivals, Tse Kwok Leung, head of Economics and Strategic Planning Department in Bank of China (Hong Kong), said Hong Kong should be confident with its core advantages, including law system, economic freedom, as well as the sound financial system and stock market.
Li said Hong Kong should further invest in IT infrastructure for the financial information and develop new asset classes and capabilities.
"Investing is like building a road, something you have to do to get the traffic," Li said, "You cannot wait for the traffic before acting."
