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Yearender: HK making headway in offshore RMB business amid volatile exchange rate

12-21-2011 16:00 BJT

by Xinhua writers Torrance Wang, So Hiu

HONG KONG, Dec. 21 (Xinhua) -- The exchange rate of the Chinese currency yuan, or Renminbi, against the U.S. dollar has been fluctuating recently quite out of market expectations, while the offshore RMB exchange rate has also been volatile, turning to discount from premium compared with the onshore exchange rate.

Financial officials and analysts in Hong Kong said the development of Hong Kong's offshore RMB market is determined by supply and demand and the two-way fluctuation highlights a gradually mature market.

On the other hand, the offshore exchange rate fluctuation hasn' t affected the onshore one very much, nor resulted in any big turbulence, a sign that Hong Kong as an offshore market for RMB business is heading to a better development.

Since Hong Kong started offshore RMB business in early 2004, the fluctuation range of both RMB onshore and offshore exchange rates has been within 2 percent, taking both premium and discount into account.

Executive Director of the Hang Seng Bank Andrew Fung said Hong Kong's offshore RMB business couldn't achieve normal development if the investment is only based on the expectation of RMB appreciation.

"From now on, if the RMB exchange rate is more stable with a slower pace of the RMB appreciation, there will be more issuers willing to sell RMB bonds," he said.

Fung said the premium or discount in the offshore RMB exchange rate has increased the overseas issuers' interest in the RMB- denominated products.

Early this month, Telmex, a Mexican telecom company, announced its plan to issue 500 million yuan (78.7 million U.S. dollars) of bonds in Hong Kong, for purchasing facilities from a technology company in the Chinese mainland, gaining breakthrough progress in the Latin America financial system.

In the first 10 months of this year, 78 entities issued some 100 billion yuan worth of RMB-denominated bonds, dubbed as "dim sum" bonds, official data showed. The figure for the entire 2010 was about 36 billion yuan.

Fung said the scale of RMB bonds in Hong Kong's offshore market is almost close to the U.S.-dollar bond in Asia ex-Japan, and Hong Kong's offshore market is developing in the right direction.

Secretary for Financial Services and the Treasury of the Hong Kong government, K C Chan, told Xinhua that Hong Kong has achieved significant progress in both growing offshore RMB business and bringing related policies forward in 2011.

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 didn't expect such rapid growth, Chan said.

Analysts also said recent deprecation of RMB is only temporary, and in the long run, the market will reestablish the expectation to the currency's appreciation.

Nevertheless, they said the depreciation of RMB in the short term may weaken the companies' desire to hold RMB assets, but it won't affect the progress of RMB internationalization as well as Hong Kong's development as an offshore RMB center.

Liao Qun, chief analyst of the China business with CITIC Bank International, told Xinhua that internationalization of RMB and other related business in the offshore market have little correlation with whether the currency is appreciating or depreciating, but based on the actual demands, among which, demand from corporations is the biggest driving force for cross-border trade settled in RMB.

Liao said the volume of trade settled in RMB in Hong Kong has expanded rapidly since the RMB trade settlement pilot scheme was expanded to 20 provincial-level regions in 2010.

In the first nine months of this year, the mainland's foreign trade, which was settled in RMB and handled by banks in Hong Kong, amounted to about 1.5 trillion yuan, almost 4 times of the 400 billion yuan in the full year of 2010. Hong Kong's role as the global RMB settlement center has been further strengthened.

Other than the expansion of the volume of trade settled in RMB, the RMB deposits in Hong Kong have also increased vastly. The total amount of Hong Kong's RMB deposits reached 620 billion yuan as of the end of October, 2011, doubling from the 300 billion yuan as of the end of 2010.


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