HK spearheading RMB liberalisation
July 11, 2012
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Financial Secretary John Tsang
Hong Kong's role as China's offshore global financial hub requires our reaching out to financial centres around the world, including Australia. We have been quite successful so far in promoting the wider use of Renminbi in all directions - north, east, west and of course, "down under" as well.
In particular, we see important opportunities in diversifying the range of Renminbi products, deepening the Renminbi market and making the best use of Hong Kong as the leading offshore centre for Renminbi-denominated business.
Australia and Hong Kong are ideal partners in this quest. We already have close business and financial links. We have similar legal and financial infrastructures. Hong Kong's international style of doing business is familiar to Australia. Both Hong Kong and Australia operate in the Asian time zone, and we are both firmly committed to the economic success of this region.
RMB liberalistion
Liberalisation of the Mainland currency began in 2004, with the introduction of offshore Renminbi banking services in Hong Kong. The scope of business has since evolved and expanded to include capital raising and trade settlement. I shall speak about the remarkable progress made in each of these areas a little later on.
What is important to remember is that, while great strides have been made in eight short years, this would not have been possible without our shared history and language and decades of financial collaboration and integration with the Mainland. Since China embarked on the reform and opening up policies in 1978, Hong Kong has been the major conduit for trade and finance between the Mainland and the rest of the world. With these 30-plus years of experience in cross-boundary trade and finance, we have built up a vast knowledge base, a mutually trusting relationship, and a financial infrastructure that dovetails with the Mainland.
Today, as a Special Administrative Region of China and working under the principle of "One country, two systems", Hong Kong will continue to be front and centre in the Renminbi liberalisation process.
Compensating for the Mainland's closed capital account, Hong Kong has its own fully convertible currency, a transparent regulatory regime and deep and broad pool of local and international financial talent - all of which are vital elements for currency reform.
In the space of eight years, we have built a stable platform for developing offshore Renminbi business supported by three sturdy pillars, namely Renminbi banking, bond issuance and trade settlement.
The mutually supportive nature of these three pillars is crucial. Together they provide the key ingredients for the stable and balanced development of offshore Renminbi business. In particular, they generate offshore Renminbi liquidity, they open the door for international players to engage in Renminbi markets, and perhaps most importantly, they create market-driven demand for Renminbi financial products.
We welcome Australian companies and financial institutions to make good use of Hong Kong's established platform in developing offshore Renminbi business through these three pillars.
RMB business taking off
As with most major new initiatives, offshore Renminbi business took a while to get going. It started small, and having established a footing, it is now in full "take-off" mode.
Back in 2004, our banks started providing a limited range of Renminbi services such as deposits, remittances, credit cards and so forth, and it has since expanded over time. By 2009, Renminbi deposits in Hong Kong were a relatively modest 63 billion Renminbi. By the end of May this year, total Renminbi deposits had increased 10-fold, amounting to some 670 billion Renminbi.
It was a similar story for offshore Renminbi bonds, affectionately called the "dim sum" bonds, which were first issued in Hong Kong in 2007. By end-2010 a total of 29 issues of Renminbi bonds had been issued in Hong Kong with a cumulative value of some 74 billion Renminbi. This included a 200 million Renminbi bond issue by ANZ Banking Group.
By comparison, last year alone saw a total of 91 issues with a total value of almost 108 billion Renminbi. We are on course to exceed that amount this year.
Naturally, this tried and trusted formula of gradual and steady progress has been repeated for Renminbi trade settlement. To cut a long story short, a pilot scheme was introduced in July 2009 covering a handful of Mainland cities. The trade settlement scheme was progressively expanded and, for the first time in August last year companies throughout Mainland China were able to settle their international trade with companies in third countries using Renminbi.
So far over three trillion Renminbi worth of trade settlement has been handled by banks in Hong Kong. It is also worth noting that Mainland trade settled in Renminbi accounted for some 7 per cent of its total trade and current account transactions last year. I mention this because it underscores how quickly this has developed from scratch only three years ago and has a huge potential for growth. It is estimated that around 30 per cent of the Mainland's trade will be settled in Renminbi by 2015.
Currently around 195 banks are participating in Hong Kong's Renminbi clearing platform, including branches and subsidiaries of foreign banks and Mainland banks operating overseas. All this adds up to a global payment network covering more than 30 countries, that includes Australia as well.
RMB hub
As a global hub for Renminbi wealth management, Hong Kong offers a growing range of products in major asset classes. These include deposits and related instruments in the cash market; bonds in the fixed income market; REITs, the Real Estate Investment Trusts; the equity market and insurance and derivative products.
Importantly, as part of our cross-border financial infrastructure, we have an RMB Real Time Gross Settlement System (RTGS) which is able to handle vast numbers of transactions smoothly and efficiently.
Mainland China has leapfrogged Japan to become the world's second largest economy. Since the year 2000, China's GDP has increased six-fold to reach US$7.2 trillion.
In the past decade, Australia's exports to the Mainland have increased by 14 times to reach US$83 billion, while Australia's Chinese imports have grown eight times to US$34 billion. Direct investment flows between the Mainland and Australia have also increased significantly to around US$2 billion.
The liberalisation of the Renminbi is an irreversible trend. It is safe to say that the introduction and expansion of future Renminbi initiatives will follow the similar successful pattern of the past eight years - starting as relatively small pilot schemes, gaining traction and eventually expanding world wide.
Hong Kong will continue to be front and centre in the Renminbi liberalisation process. This is clearly stated in the Central Government's National 12th Five Year Plan covering the period up to 2015. Our advantages include the city's mature international banking sector, robust regulatory environment and free flows of capital, information and talent.
Beijing backing
During his visit to Hong Kong for our 15th Establishment Day Anniversary on July 1 this year, President Hu Jintao reaffirmed the Central Government's support of Hong Kong's development as the nation's offshore Renminbi business centre. President Hu also announced a series of enhancement measures, including developing the offshore Renminbi lending market, enriching the variety of offshore Renminbi products in Hong Kong, expanding the range of participating entities and relaxing investment restrictions under the Renminbi Qualified Foreign Institutional Investors scheme (RQFII). The quota under the RQFII was recently expanded from 20 billion to 70 billion Renminbi.
Separately last month, the Ministry of Finance issued sovereign bonds in Hong Kong totaling 23 billion Renminbi. This was the largest of the four such issuances so far, and represented a huge "thumbs up" for Hong Kong from the Central Government. On this occasion, the Ministry also issued a retail tranche that was quite popular with the investors.
However, our city is not the only place to conduct offshore Renminbi business - far from it. As an international financial centre, Hong Kong has an opportunity, and indeed an obligation, to promote the wider use of Renminbi overseas.
Our goal is not to grab the entire Renminbi pie, but to grow that pie even bigger for the benefit of businesses and economies around the world.
In January this year, the Hong Kong Monetary Authority and the UK Treasury launched a joint private-sector forum. The aim of this initiative was to strengthen co-operation between Hong Kong and London on the development of offshore Renminbi business. The first Hong Kong-London Forum was held here in May.
It is also encouraging that an RMB Trade & Investment Dialogue among the banking and business communities in Hong Kong and Australia will be initiated. The Hong Kong Monetary Authority, the Australian Treasury and the Reserve Bank of Australia will jointly facilitate this particular initiative. It will be a useful platform to share information and explore mutually beneficial views to expand Renminbi business.
With a cautious but confident approach, Hong Kong has been able to play itself into a strong position. We have launched and expanded a range of Renminbi initiatives with the full support of the Central Government.
We have also built up the largest pool of Renminbi liquidity outside the Mainland. But it is not only size that matters. Many of the initiatives I have mentioned today underpin the dynamism of the Renminbi market in Hong Kong and promote the circulation of funds in the system.
I look forward to exploring with Australia the new opportunities which are appearing on our horizon.
Financial Secretary John Tsang gave this speech at the Renminbi Cross-border Trade & Investment Forum at the Central Government Offices.
