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Speech at the Asian Development Bank RMB Bond Launch Ceremony

by Peter Pang, Deputy Chief Executive, Hong Kong Monetary Authority

19 October 2010

Good morning ladies and gentlemen,

1. It is my great pleasure to be here today to join you to celebrate the launch of the Asian Development Bank's first issue of renminbi bond in Hong Kong.

2. The Asian Development Bank's debut renminbi issue is ground breaking in two ways. It marks the deepening of the renminbi bond market by extending the universe of issuers to include the triple-A rated international financial institutions. It also marks a significant extension of the tenor of renminbi bonds from two, three and five years to ten years. This will no doubt help the development of a benchmark yield curve for offshore renminbi bonds over time.

3. This bond issue is also launched at an exciting time for all those who have an interest or a part to play in the development of the renminbi business in Hong Kong. 2010 would probably mark the taking-off of renminbi financial activities that would build the foundation for Hong Kong's development as a renminbi trade settlement centre, renminbi financing centre and renminbi wealth management centre. These different dimensions of Hong Kong's renminbi financial market are mutually reinforcing. I am hopeful that they would evolve into a virtuous circle, speeding up the formation of a critical mass of the offshore reniminbi market in Hong Kong. Let me explain how the interface between these three important dimensions of the renminbi market may achieve this desirable outcome.

4. The first dimension is the development of Hong Kong as an renminbi trade settlement centre. Following the substantial expansion of the renminbi trade settlement scheme in June 2010, whereby companies in 20 provinces and cities in Mainland China can now have the option to settle their current account transactions with any parts of the world in renminbi, the amount of trade transactions settled through banks in Hong Kong has increased by more than eight times, to over 38 billion yuan in August, from an average of 4.5 billion yuan in the first half of this year. The potential for significant future increase is tremendous as the current settlement volume only accounts for a small fraction of the trade between China (including Hong Kong) and the rest of the world.

5. The increase in renminbi trade proceeds will help to build up a liquidity pool to support renminbi financial intermediation through bank lending and bond issuance. In the other direction, the deepening of the renminbi bond market will also reinforce the further expansion of trade settlement. Traders will have more incentive to settle trade transactions in renminbi if they are confident that the trade proceeds can be put to good use in investing in renminbi denominated financial products.

6. The second dimension is the development of Hong Kong as an renminbi financing centre. Supported by the increasing volume of trade transactions settled in renminbi, the pool of renminbi deposits in Hong Kong has grown, from just over 60 billion yuan at the end of last year, to over 130 billion yuan at the end of August. While this amount of liquidity is still small, it has nevertheless been catalytic to renminbi financial intermediation in Hong Kong.

7. We have seen earlier this year a number of ground breaking renminbi financing arrangements. These include the 70 billion yuan loan facility extended by the China Development Bank to Venezuela to fund oil production related projects; and renminbi fund raising by the Hopewell Highways Infrastructure and McDonald's in Hong Kong to finance their projects in the Mainland in the form of foreign direct investment. These landmark transactions underline the importance of building a two-way channel to connect Hong Kong's capability in international financial intermediation with the real economic activities that are denominated in the renminbi, which up to this point are still mainly concentrated on the Mainland. These developments clearly show that the fund raisers have the appetite to make use of Hong Kong's comprehensive and multi-currency financial platform to raise renminbi funds to meet their financing and investment needs. The international financial institutions are also actively involved in projects on the Mainland. I am sure their participation in renminbi financing will further energize this channel of two-way flow and deepen Hong Kong's role as an renminbi financing centre.

8. The third dimension is the development of Hong Kong as an renminbi wealth management centre. The revision of the renminbi Clearing Agreement between the People's Bank of China and the Clearing Bank in July has removed the restriction on interbank transfer of renminbi funds, an important hurdle that had previously limited the development of renminbi wealth management products in Hong Kong. Financial intermediaries are responding quickly and proactively to this relaxation with the launch of a wide range of renminbi denominated financial products. These include renminbi certificates of deposits, structured deposits, insurance products and investment funds. The reception of investors has been phenomenal. The issuance of long-dated triple-A bonds by the Asian Development Bank will provide further impetus to support the development of renminbi denominated wealth management products. In particular, issuers of the very popular renminbi denominated insurance policies need long-dated renminbi bonds to match the long-term liability of their policy exposure.

9. All of these encouraging developments underscore the point that having the right policy framework is one of the key preconditions for renminbi business in Hong Kong to take off. But that accounts for only half of the equation. It is equally important for financial intermediaries, international financial institutions included, to seize the opportunity and play a proactive role in reaching out to those who are in demand and supply of renminbi. The Asian Development Bank has once again demonstrated its commitment to the development of financial markets by bringing about this renminbi bond issue today. I would like to congratulate the Asian Development Bank on the successful launch of the bond issue, and look forward to many more to come.

10. Thank you.

Last revision date: 1 August 2011
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