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Offshore renminbi business booming at 10-year mark

Hong Kong has developed into the world's largest offshore renminbi business hub, with the world's largest offshore pool of renminbi funds.

It’s been 10 years since banks in Hong Kong became the first globally to provide personal customers with offshore renminbi banking services. Since then, the city has firmly established itself as the pioneer and focal point for developing new products and promoting the widespread use of the mainland China currency around the world.

“Internationalization of the renminbi has become a dominant trend with more and more activities in major cities around the world. This trend will gather pace with the Central Government’s commitment to ongoing financial and economic reform,” said Hong Kong Financial Secretary John C. Tsang.

“Going forward, Hong Kong has a great opportunity to use its leading position as the center for offshore renminbi business in a way that not only benefits our city, but also our partners in the Mainland and around the world,” he added.

A successful test case for "One Country,
Two Systems"

Under “One Country, Two Systems,” Hong Kong maintains its own financial and legal systems separate from those of mainland China.

This includes full convertibility of the Hong Kong dollar, free flow of capital and a common law system underpinned by an independent judiciary. Hong Kong’s well-developed financial system has strong international connectivity that includes 70 of the world's largest banks operating in the city.

“With the support of the Central Government, Hong Kong has developed into the world's largest offshore renminbi business hub, with the world’s largest offshore pool of renminbi funds. Through the development of renminbi bonds, loans and equity products, Hong Kong has also become the largest offshore renminbi financing and asset management center,” said Hong Kong Secretary for Financial Services and the Treasury, Professor K. C. Chan.

“Hong Kong is a leading global financial center where international capital and investors congregate to lead a range of financial activities. Development of Hong Kong as a premier offshore renminbi business center provides a new growth driver for our equity market and asset management business,” added Professor  Chan.

From offshore renminbi personal banking to trade settlement and fundraising

On February 25, 2004, banks in Hong Kong were, for the first time, able to provide personal customers with offshore renminbi banking services, including deposit taking, currency exchange, remittance, and credit and debit card services.

By end-2007, renminbi deposits in Hong Kong reached about RMB 33 billion, representing a relatively modest but important pool of offshore renminbi liquidity.

In January 2007, the People’s Bank of China gave the go-ahead for qualified Mainland financial institutions to issue renminbi bonds in Hong Kong, marking the launch of offshore renminbi fundraising.

Initially, only banks in mainland China and Hong Kong were able to issue the so-called “dim sum” bonds. China Development Bank got the ball rolling with a heavily oversubscribed RMB 5 billion “dim sum” bond issue in July 2007.

The more significant development of renminbi liberalization is trade settlement. The introduction of the pilot program for renminbi cross-border trade settlement in July 2009 was a watershed moment as renminbi business in Hong Kong moved into its second stage of development.

“It expanded from serving personal customers to enterprises and institutions, and transformed from just one-way repatriation of renminbi cash notes to two-way flows of renminbi, marking a crucial step forward to the internationalization of renminbi,” said Chief Executive of Hong Kong Monetary Authority (HKMA) Norman Chan.

Growth spurt since 2010

In July 2010, Hong Kong became the first place outside the Mainland to have an interbank market for renminbi. Offshore banks were able to transfer renminbi among themselves for the first time. In addition, businesses anywhere in the world could open an account in Hong Kong and freely exchange renminbi.

By August 2011, the pilot renminbi trade-settlement program (which initially covered the five Mainland cities of Shanghai, Shenzhen, Zhuhai, Dongguan and Guangzhou) was expanded to include all provinces throughout mainland China.

The value of offshore renminbi trade settlement handled by banks in Hong Kong has increased more than tenfold, from RMB 369.2 billion in 2010 to RMB 3,841 billion in 2013, which represents a lion’s share of mainland China’s total renminbi trade settlement. By the end of 2013, Hong Kong had built up by far the largest pool of renminbi liquidity outside the Mainland, amounting to RMB 1,053 billion, including RMB 860 billion in deposits and RMB 193 billion worth of certificates of deposit.

Currently, 216 banks participate in Hong Kong’s renminbi clearing platform, including 191 branches and subsidiaries of foreign banks and overseas presence of Mainland banks.

In July 2010, the range of “dim sum” bond issuers expanded from Mainland financial institutions to local and foreign entities.

McDonald’s Corporation was the first foreign company to take a bite out of the “dim sum” bond market in September that year. Since then, the outstanding size of the offshore renminbi bond market in Hong Kong has increased 4.6 times from RMB 56 billion at end-2010 to RMB 310 billion as of end-2013.

In a further show of confidence, the Central Government has issued renminbi sovereign bonds in Hong Kong between 2009 and 2013 with a cumulative value of RMB 80 billion.

Recent game changers

In recent years, a number of game-changing elements have been introduced to further promote the flow of renminbi outside mainland China.

In 2011, the Central Government introduced the Renminbi Qualified Foreign Institutional Investor (RQFII) program to enable overseas investors to use offshore renminbi deposits to invest in Mainland securities markets. The program’s quota has been raised in stages from its initial level of RMB 20 billion to the current quota of RMB 270 billion.

In March 2013, the RQFII program was widened significantly to include all financial institutions which are registered and have major operations in Hong Kong. As a result, a number of new renminbi-denominated products and funds have been launched.

In June 2013, the Treasury Markets Association launched the CNH Hong Kong Interbank Offered Rate (CNH HIBOR) fixing. This provides a referencing benchmark for loan facilities and facilitates the development of new renminbi-denominated financial products as well as hedging instruments.

The cornerstone of Hong Kong’s renminbi infrastructure is the RMB Real Time Gross Settlement (RMB RTGS) system, which is capable of handling a huge volume of money quickly and reliably. It is linked to the China National Advanced Payment System (CNAPS).

Going global

As China's global financial hub, Hong Kong is fully engaged in promoting the use of renminbi in financial centers around the world.
Since 2010, the Hong Kong Special Administrative Region Government and the HKMA have staged a number of overseas roadshows to promote the internationalization of the renminbi.

A number of private-sector collaborative initiatives have been established between Hong Kong and overseas markets with a view to increasing Hong Kong's renminbi business links with other parts of the world. These include a Hong Kong-London RMB Forum and dialogues with Australia and Malaysia.

The next phase

To maintain and expand Hong Kong's role as a global renminbi hub, the HKSARG will continue to work with Mainland authorities to facilitate circulation of renminbi funds and diversify renminbi business and products, while Hong Kong's banks will provide wholesale services to international financial institutions and corporates.

The government has also struck a general consensus with Mainland authorities on mutual recognition of funds, which will allow Hong Kong companies to reach Mainland investors.

"Hong Kong has a great opportunity to use its leading position as the center for offshore renminbi business in a way that not only benefits our city, but also our partners in the Mainland and around the world," Mr. Tsang said.


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