Mainland Chinese banks at the start, to Mainland subsidiaries of Hong Kong banks and China’s Ministry of Finance in 2009, and further to Hong Kong corporations and famous international institutions like McDonald’s and the Asian Development Bank last year.
Any issuers, including foreign corporations and multilateral organisations, can now issue RMB bonds in Hong Kong, just as they can issue bonds in any other currencies. Of course, if the proceeds are to be used on the Mainland, the moving of funds into Mainland China will have to meet the requirements there. By the same token, banks can now also offer RMB financing to their clients, including enterprises which conduct direct investments under the pilot scheme for the settlement of ODI in RMB introduced in January this year.
As the pool of offshore RMB funds in Hong Kong continues to grow, there will be huge opportunities for financial institutions to take part in RMB financing as well as in the origination, distribution, investment and trading of RMB bonds.
The second dimension is RMB trade settlement. The RMB trade settlement pilot scheme was introduced in July 2009. The initial scope of the scheme was rather limited. But in less than a year, the pilot scheme was expanded to cover enterprises in 20 provinces and cities on the Mainland and their trade transactions with any parts of the world can now be settled in RMB.
The expanded scope has led to a rapid growth in the transaction volume of RMB trade settlement in Hong Kong, which was increased from a monthly average of 4.5 billion yuan in the first half of 2010, to more than 87 billion yuan in the fourth quarter, representing an almost twenty-fold increase during the period.
To date, Hong Kong accounts for about 75% of Mainland’s RMB trade settlement. This clearly demonstrates the strong preference of market players for making use of Hong Kong’s platform for RMB trade settlement. The highly efficient and reliable RMB Real Time Gross Settlement (RTGS) system in Hong Kong has played a significant role here. We are the first and so far the only place outside Mainland China that has developed a full-fledged RMB RTGS system, enabling us to handle the settlement of cross-border trade between the Mainland and other economies in a safe and efficient manner.
China is one of the biggest trading nations in the world. The potential for further increases in RMB trade settlement is considerable given that the current volume only accounts for a small fraction of total trade between China and the rest of the world. RMB trade settlement proceeds will represent an important and sustainable source of growth in offshore RMB funds in Hong Kong.
The third dimension is RMB wealth management business. The RMB wealth management business in Hong Kong took off last year after the RMB Clearing Agreement was revised in July 2010. The RMB Clearing Agreement lays down the framework for RMB business in Hong Kong. I will not bore you with the details but just to highlight two important changes made in the Agreement.
First, the restrictions on the types of institutions that can open RMB bank accounts were lifted. This effectively means that securities firms, asset management companies and insurance companies are now free to open RMB bank accounts. Second, the restrictions on RMB interbank transfers between personal accounts and corporate accounts were also removed.
With these relaxations, the key hurdles that had previously limited the development of offshore RMB wealth management business have been eliminated. Market players have been responding to these relaxations quickly with the launch of a wide range of RMB investment products. These include RMB-denominated insurance policies and investment funds. Investor interest in these products has been phenomenal.
In developing our offshore RMB business, let me stress that Hong Kong does not have a monopolistic power and we are also facing competition from other financial centers.
BIS central bankers’ speeches