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HK sees rapid growth in RMB business in 2011, yet far from becoming offshore RMB center: official

12-05-2011 08:27 BJT

HONG KONG, Dec. 4 (Xinhua) -- Hong Kong has achieved significant progress in both developing offshore renminbi businesses and bringing related policies forward in 2011, but the city still has a relatively long way to go before becoming an offshore renminbi center, a senior official with the Hong Kong government said.

In an interview with Xinhua, Secretary for Financial Services and the Treasury, K C Chan, said the internationalization of the Chinese currency yuan, or renminbi, which is at its very early stage, is forging ahead in a new and unprecedented fashion and should proceed step by step with caution.

As a principal official, 54-year-old Chan is overseeing policy-making and vision of Hong Kong's financial services industry, one of the four pillars of the Hong Kong economy. Before joining the government in July 2007, Chan, also a noted economist, was Dean of the Business School of the Hong Kong University of Science and Technology, Asia's top business school.

PROGRESS

Chan said Hong Kong's offshore RMB business, which officially started in February 2004, gained very good momentum in 2011, as the RMB deposits grew considerably and a lot more RMB-denominated bonds were issued this year.

According to figures from the Financial Services and the Treasury Bureau, by the end of October, RMB deposits in Hong Kong nearly doubled from the start of this year, to 618.5 billion yuan (97.2 billion U.S. dollars), which accounted for about 10 percent of the total deposits in Hong Kong.

In the first ten months this year, 71 entities issued 92.6 billion yuan worth of RMB-denominated bonds, dubbed "dim sum" bonds. The figure for the entire 2010 was about 36 billion yuan.

Since the establishment of the offshore deliverable RMB market in Hong Kong in July 2010 when the Mainland and Hong Kong signed a revised Settlement Agreement on the Clearing of RMB Businesses, the policies had been successfully implemented, and many market participants in Hong Kong did not expect such rapid growth, Chan said.

"And most importantly, we have the support form the central government, in setting up policies that help us develop the market, both in 12th Five-Year Plan as well as the measures announced by Vice Premier Li Keqiang," he said.

Li, in a visit to Hong Kong in August, announced a series of new measures, some long-awaited, which would enhance Hong Kong's RMB business development, including allowing Hong Kong enterprises to make direct investments in mainland's RMB (RMB FDI) and the RMB Qualified Foreign Institutional Investors (RQFIIs). The RQFII allows Hong Kong's designated institutions to invest in mainland securities markets with an initial size of 20 billion yuan.

Chan said both the RMB FDI and RQFII will be helpful to improve what he called "inner circulation" of the RMB capital, which referred to the flow between Hong Kong offshore market and the mainland onshore market.

Only if RMB-denominated capital and portfolio are allowed to invest in the mainland, can overseas demand for RMB increase, can investors' willingness to retain RMB assets become stronger and can Hong Kong's RMB deposits be put into the market and flow, he said.

While the regulations on the RMB FDI had been promulgated by the People's Bank of China and the Ministry of Commerce in October, the RQFII is still in the making. Hong Kong market expects it to come out in early 2012, if not before the end of this year.

"I don't have a timetable but I think it will roll out very soon," Chan said. "I don't dare to say it will roll out at the end of the year, because it is approaching the end of the year."

MORE TRADE SETTLEMENT IN RMB

For 2012, the official said he hoped that both the RMB FDI and the RQFII will play their role and more financial institutions will be allowed to participate in the RQFII. He also hoped to see more issuance of "dim sum" bonds as a result of the RMB FDI.

Most importantly, Chan said he would like to see a larger proportion of the mainland foreign trade settled in RMB, and more companies using Hong Kong's RMB clearing system.

"Currently, about 10 percent of China mainland's overall trade is denominated in RMB. I hope that with Hong Kong's efforts, with everybody on the mainland side efforts, we can actually increase the percentage from ten percent to even higher number."

"In Hong Kong, the objective is to get RMB to be used in oversees trade settlement, so everything we do here is trying to facilitate those trade financing and trade settlement. That number has grown from 0 to 10 percent over a year and a half. So if we can get more of that coming, we can increase the percentage."

Official statistics indicated that the percentage of the mainland's total trade which is settled in RMB has risen from 0.7 percent in the first half of 2010 to 4 percent in the second half of 2010. It further rose to 9 percent in the first half this year.

And in the first nine months this year, 1.33 trillion yuan worth of the mainland's foreign trade was settled in RMB. Of it, about 86 percent is handled by banks in Hong Kong, which boasts efficient and reliable RMB infrastructure.

Chan said the indicators which he cared now were how much of the mainland's foreign trade that is settled in RMB and how much of it is handled in Hong Kong's offshore market, instead of the RMB deposits in Hong Kong.

Growth of RMB deposits in Hong Kong has dramatically slowed down this year, from 17.7 percent in January to 0.9 percent in June. In October, it even declined 0.6 percent month-to-month.

Chan said one of the reasons was that the inflow and outflow of RMB through trade settlement between Hong Kong and the mainland were somewhat balanced in recent months, which he said was a good thing for development of Hong Kong's offshore RMB market and the RMB as a settlement currency.

According to Chan, more overseas companies began to use RMB in recent months to buy goods from the Chinese mainland, which led to the outflow of RMB from Hong Kong, since RMB appreciation was no longer a market consensus view and RMB exchange rate against the greenback could fall now.

OFFSHORE RMB CENTER

Despite significant progress in 2011, the official admitted that Hong Kong still has a relatively long way to go before really becoming an offshore RMB center.

"We should forge ahead step by step and make use of our advantages to develop various functions of an offshore center."

He said Hong Kong is blessed with obvious advantages in developing RMB businesses, as Hong Kong has the nation's most internationalized financial market and a large number of financial services professionals, and there has been close contacts and coordination between the city government and the central governmental departments.

Chan described Hong Kong's efforts in internationalization of RMB as a win-win mission for both the country and the city itself. One the one hand, Hong Kong's development of offshore RMB business is to help the nation reform its financial sector and help RMB go globally.

On the other hand, the tremendous opportunities brought about by internationalization of RMB will help to strengthen Hong Kong's role as an international financial center.

As RMB goes globally via Hong Kong, the city's financial market will be more vigorous and diversified with more products and services. Moreover, the financial market itself will become even internationalized.

"We are promoting Hong Kong's RMB business in major cities worldwide. That's tantamount to promoting Hong Kong's entire financial services."

Apart from Chan, Hong Kong Chief Executive Donald Tsang, Financial Secretary John Tsang and other officials have also been engaged in promotion events in such cities as London, New York and Los Angles to sell Hong Kong's RMB businesses.

RMB GOING GLOBAL, STEP BY STEP

Chan said he was optimistic about the internationalization of RMB as it has several favorable conditions. One is that the world realizes that the global economy will not sustain if the U.S. dollars dominates forever since the outbreak of the financial tsunami in 2008. There are worries over the financial systems in the U.S. and Europe.

Second, seeing emerging economies achieving notable growth and China becoming the world's second largest economy, many foreign companies and banks hope to deepen relations with China.

"China's economic growth has been phenomenal, as everybody can see. When our economy becomes strong enough, the currency will become an internationally-circulated currency.... I have no doubt eventually at some point of time, that RMB will become a very important international currency."

But he cautioned that it is not something that will happen shortly, nor something that the Chinese government really hopes to happen quickly.

"It's not the objective of making RMB suddenly the reserve currency for the world. I think it's all very clear to everybody. I think it really is a try-and-see (manner), a gradual opening, a gradual introduction of RMB into the international arena."

Chan noted that China was trying to introduce RMB into the global market in a new and unprecedented way.

Usually, sovereign currencies entered the global market only after the opening of the country's capital account. While China is trying to push RMB into the overseas market by cross-border trade settlement since June of 2009, as its capital account is largely closed.

"How fast or how slow to push forward with internationalization of RMB, it will depend on China's own considerations of the situation and global financial environment."

At this moment, "We just do it step by step and increase the international acceptance of RMB as a settlement for trade and an investment asset," Chan added. Enditem

Editor:Zhang Hao |Source: Xinhua

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