Opinion
Rapidly growing offshore renminbi center
By Torrance Wang and Liu Chen (China Daily)
Updated: 2011-05-04 15:37
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From basic renminbi deposit and exchange to the first renminbi-denominated securities listed on the Hong Kong stock market, the offshore renminbi business in the Hong Kong Special Administrative Region (SAR) has been growing steadily over the past seven years.
With the capital pool gradually forming and the investment products diversifying, the fledgling offshore market marks a further step toward internationalization of the renminbi.
At the same time, Hong Kong has also benefited from the offshore business: Its capital market has developed rapidly as it has seized the chance to grab commercial opportunities. It is widely believed that the offshore renminbi business is essential for Hong Kong's future as a financial center.
Renminbi business was originally introduced in Hong Kong in February 2004 to facilitate cross-border tourist spending in the SAR. In July 2007, the first renminbi-denominated bonds were sold in Hong Kong, and in June 2009, Hong Kong became the pilot city for renminbi settlement of cross-border trade outside of the Chinese mainland.
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Based on these symbolic breakthroughs, the offshore 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).
HKMA data shows that renminbi deposits in Hong Kong were 451.4 billion yuan ($69.4 billion) as of March this year, while the total renminbi remittance for cross-border trade settlement jumped 32 percent from February to March.
Peter Pang, deputy chief executive of HKMA, said in late March that the offshore renminbi market in Hong Kong is gradually forming, driven by the interaction of renminbi trade settlement, financing and asset management.
Charles Li, the chief executive of Hong Kong Exchanges and Clearing, said earlier that in the formation stage of the offshore renminbi market, the commercial benefits will be relatively limited, as the products are low yield such as insurance and mutual funds. However, they will encourage financial institutions to develop new renminbi products or services, and as the infrastructure is improving, more products will find their way into the market, laying a solid foundation for Hong Kong to become the offshore renminbi business center.
As Li said, with the development of the offshore renminbi market on the fast track since the beginning of 2011, renminbi deposits will reach a substantial amount, pushing the growth of Hong Kong's offshore renminbi business.
At this stage, the market will begin to see a visible accumulation of renminbi liquidity, with growth in the range of products, the scale and yield profiles. Trading in the secondary market will also become more active. Products in two key areas will be worth watching: trade finance and exchange traded products.
High-yield products will effectively attract more offshore investors to accept and use the renminbi, who will then invest the currency back into the Hong Kong market, thus increasing the renminbi liquidity in Hong Kong.
Li said the renminbi 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 offshore renminbi market will exceed 2 trillion renminbi in the near future."This is a business opportunity calculated in trillions," he said.
The offshore renminbi market will grow bigger and bigger and not only Hong Kong wants to get a piece of the cake. The renminbi business in Singapore has been growing fast, with banks preparing for the offshore renminbi-denominated bond products.
Other financial centers such as London, are also keeping a close eye on the renminbi pie. Mayor of the City of London Alderman Bear said in Shanghai in mid-April that they aim to be another offshore renminbi center as soon as possible.
"Developing several offshore trading centers can help to enlarge the renminbi market," he said.
Li said Hong Kong should further invest in IT infrastructure 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."
The authors are with Xinhua News Agency.
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