Offshore renminbi business in Hong Kong began to grow rapidly last year, and the momentum has continued into the first half of this year with across-the-board expansion in various renminbi businesses. Hong Kong as the offshore renminbi business centre has started to take shape, playing an important role in promoting the cross-border use and internationalisation of the renminbi. The HKMA has just collected the latest statistics of renminbi business in June, and I would like to take this opportunity to provide a brief review of the developments so far this year.
The amount of renminbi deposits in Hong Kong’s banking system continued to increase rapidly in the first six months of 2011. It grew by 76% from RMB315 billion yuan at the beginning of this year to RMB550 billion yuan at the end of June, increasing at a monthly average of around RMB40 billion yuan. Renminbi deposits by corporate, the key driver of the growth in renminbi deposits, increased by about RMB200 billion yuan to over RMB390 billion yuan at the end of June, representing 71% of the total deposits. Meanwhile, renminbi deposit by overseas corporates with banks in Hong Kong also increased considerably by 140% from RMB29 billion yuan at the beginning of this year to RMB69 billion yuan at the end of June this year. The share of renminbi corporate deposits held by overseas corporates also went up from 15.8% to 17.6%. All these reflect the continuous strengthening of the Hong Kong offshore renminbi business platform and its capability in providing services to enterprises around the world.
Renminbi trade settlement conducted through Hong Kong banks reached RMB800 billion yuan in the first half of 2011, already more than doubling the RMB370 billion yuan recorded for the whole of last year. The monthly average settlement amount also increased substantially by 135% from RMB57 billion yuan in the second half of 2010 to RMB134 billion yuan in the first six months of 2011. Renminbi trade settlement amount in June alone exceeded RMB200 billion yuan, up 34% from May. In the first half of this year, more than 80% of the Mainland’s total renminbi trade settlements were conducted through banks in Hong Kong, compared with 73% in 2010. It demonstrates that Hong Kong continues to be the most important platform for renminbi cross-border trade settlement.
As the renminbi liquidity pool in Hong Kong continues to expand, renminbi financial intermediary activities have become more vibrant. In particular, the development of renminbi “dim sum” bonds in Hong Kong is very encouraging. In the first six months of 2011, 38 entities issued renminbi bonds amounting to RMB42.7 billion yuan in Hong Kong, already breaking the record of RMB35.8 billion yuan of bonds issued by 16 issuers in the entire year of 2010. The renminbi debt market continued to be active in July, and a sizable total issuance amount this year can be expected. Renminbi lending business of banks, despite a relatively slower start, has picked up in the first six months of 2011. The outstanding amount of renminbi loans granted by banks in Hong Kong surged by five times from less than RMB2 billion yuan early this year to RMB11 billion yuan at the end of June.
In addition, Hong Kong’s renminbi platform is playing a more prominent role in supporting overseas banks to develop their renminbi business around the world. The number of participating banks in Hong Kong’s renminbi clearing platform increased from 154 at the beginning of this year to 180 at the end of June, of which 157 are subsidiaries and branches of overseas banks and overseas branches of Mainland banks, creating a renminbi payment and settlement network covering over 30 countries globally.
I note that the month-on-month growth in renminbi deposits decelerated in June. The increase during the month was only RMB4.8 billion yuan, which was less than the average monthly increase of RMB46 billion yuan during the first five months this year. Based on our initial observations, the slower growth in June was mainly attributable to the situation that the amount of payments from Hong Kong to the Mainland for renminbi cross-border trade settlement exceeded the payments from the Mainland to Hong Kong in that month. In the first five months of this year, outward payments (from the Mainland to Hong Kong) for renminbi trade settlement on average had been exceeding inward payments (from Hong Kong to the Mainland) by roughly RMB30 billion yuan a month. But the amount of net payment flows reversed in June with inward payments (from Hong Kong to the Mainland) exceeding outward payments (from the Mainland to Hong Kong), with net payments from Hong Kong to the Mainland amounting to some RMB10 billion yuan. There may not be anything peculiar about short-term fluctuations in the size and direction of such net payment flows, given that the payment flows of renminbi cross-border trade settlement can be affected by many seasonal and other factors. We will need more time to observe in order to be able to understand more clearly the trend of cross-border trade settlement payment flows.
In summary, very good progress was achieved in the past six months, both in terms of the various aspects of offshore renminbi business, and the depth and breadth of the renminbi market in Hong Kong. The development of the offshore renminbi market is not just about the pace of deposit growth, and what is more important is whether financial intermediary activities can start to develop at the same time. If a liquidity pool just expands without financial intermediary activities catching up, it is a pool with poor circulation, and it would not be able to expand continuously at a fast pace. Looking ahead, I expect Hong Kong’s offshore renminbi business to continue to have encouraging developments in the second half of the year, with renminbi cross-border trade settlement, deposit-taking and lending businesses, renminbi bond issuance and development of other financial products enjoying persistent growth. Hong Kong will continue to play the crucial role of being the bridge linking the onshore and offshore markets, facilitating the cross-border flows and virtuous circulation of renminbi funds and contributing to the gradual internationalisation of the renminbi in an orderly and risk-controlled manner.
Norman T. L. Chan
Hong Kong Monetary Authority
28 July 2011