Briefing on the Latest Developments of RMB Business in Hong Kong
Speeches
23 Dec 2010
Briefing on the Latest Developments of RMB Business in Hong Kong
Norman T.L. Chan, Chief Executive, Hong Kong Monetary Authority
(Translation)
- Good afternoon. Today I would like to provide an update on the
latest developments of renminbi (RMB) business in Hong Kong.
- With the strong support from the Central Government and the
relevant Mainland authorities, the development of RMB business in
Hong Kong has been encouraging this year. Significant growth and
progress have been seen in various areas, including cross-border
trade settlement, deposits, bond issuance and the introduction of
financial products in the second half of this year.
- The total amount of RMB deposits increased markedly from RMB 60
billion at the end of last year to RMB 220 billion in October and
RMB 280 billion in November this year. Of these deposits, those
from personal customers amounted to RMB 120 billion, with a total
of 2.2 million accounts and an average deposit size of RMB 54,000.
Deposits from corporate clients amounted to RMB 160 billion at the
end of November, with 117,000 accounts and an average deposit size
of RMB 1.3 million.
Conversion arrangement
for trade settlement in 2011
- Following the substantial expansion of the geographical
coverage of the cross-border RMB trade settlement scheme in June
this year, the amount of cross-border RMB trade settlement has
grown rapidly, from a monthly average of about RMB 4 billion in the
first half of the year to about RMB 30 billion each month in August
and September, and close to RMB 68 billion in October. Under such
circumstances, the amount of RMB purchased by the Participating
Authorized Institutions (Participating AIs) through the Clearing
Bank in the China Foreign Exchange Trading System in Shanghai
increased notably in October, and the conversion arrangement
concerned was suspended in late October. In response, the HKMA
promptly introduced a number of measures, and the RMB market in
Hong Kong has been operating orderly and smoothly to date.
- As regards the conversion arrangement for 2011, after
discussions with the People's Bank of China (PBoC), the HKMA
consider appropriate to introduce certain refinements to the
arrangement for the conversion of RMB conducted by Participating
AIs for their customers in relation to cross-border trade
settlement. Before going into the specific refinements, I would
like to elaborate the background of the arrangement for the
conversion of RMB conducted by Participating AIs through the
Clearing Bank in Shanghai:
| (1) |
First, RMB funds flowed into Hong Kong through trade payments
or other channels will become RMB deposits in Hong Kong, and these
RMB funds can be used, deployed or exchanged freely into other
currencies in the market in accordance with the applicable laws and
regulations in Hong Kong. This is the main premise of developing an
RMB offshore market in Hong Kong. In other words, the exchange rate
and interest rate of RMB are to be determined by the supply and
demand of RMB funds in the Hong Kong market. As the offshore and
onshore markets are segregated, it is not unusual that the pricing
may be different between the two markets. |
| (2) |
Secondly, we should look at the actual supply and demand of RMB
funds in the Hong Kong market this year. At the end of November,
the total amount of RMB deposits in Hong Kong reached RMB 280
billion. This means that Hong Kong has accumulated a substantial
pool of RMB funds which can meet the market's daily demand.
Regarding cross-border trade settlement, in the first 11 months
this year, payments from the Mainland to Hong Kong amounted to RMB
180 billion while payments from Hong Kong to the Mainland amounted
to RMB 50 billion, resulting in a net inflow of RMB 130 billion to
Hong Kong. These RMB funds remain in Hong Kong and constitute a
main source of supply in the local RMB market. Of the RMB 50
billion paid from Hong Kong to Mainland enterprises, only about RMB
10 billion was obtained by conversion in Shanghai through the
Clearing Bank. In November alone, the payment from Hong Kong to the
Mainland under the trade settlement scheme reached RMB 22 billion.
However, as the arrangement for conducting RMB conversions in
Shanghai was suspended, enterprises in Hong Kong could only
purchase RMB funds from the Hong Kong market. Given the abundant
supply of RMB funds in the local market, the pricing of RMB funds
in the Hong Kong offshore market and that in Shanghai were quite
close to each other, with the differential between the two staying
within 300 pips for most of the time in recent weeks. This shows
that the offshore pool of RMB funds in Hong Kong is serving the
function of supplying RMB funds to meet the demand from local
enterprises, such that there is no need to rely heavily on the
onshore conversion window in Shanghai for trade settlement. In
other words, the conversion window in Shanghai serves a
supplementary rather than the main source of RMB funds for trade
settlement purpose. |
- In order to further promote the steady development of the RMB
market in Hong Kong, the following refinement measures will take
effect from January next year:
| (1) |
Participating AIs can square their positions with the Clearing
Bank when there is a shortfall of RMB arising from conversions with
customers for cross-border trade settlement transactions. In other
words, Participating AIs should first utilise the RMB trade
proceeds purchased from their customers to satisfy requests for RMB
conversions for trade settlement transactions before purchasing RMB
through the Clearing Bank in Shanghai. |
| (2) |
Participating AIs can only purchase RMB through the Clearing
Bank in Shanghai for their customers in relation to trade
transactions due for payments to the Mainland within three months.
The HKMA and the PBoC estimate that the demand for RMB conversion
in Shanghai would be within RMB 4 billion in the first quarter of
2011. The volume of conversion will be assessed and appropriately
adjusted after the first quarter taking into consideration the
actual circumstances. |
| (3) |
In order to maintain a steady supply of RMB, the HKMA will, as
a standing arrangement, provide RMB funds of RMB 20 billion through
its currency swap arrangement with the PBoC, for cross-border RMB
trade settlements. |
| (4) |
Given the restrictions in the convertibility of RMB,
Participating AIs are required to limit their RMB net open
positions (whether net long or net short) to 10% of their RMB
assets or liabilities. |
Participating AIs'
credit risk exposure to the Clearing Bank
- In their letter to the HKMA in November, the Hong Kong
Association of Banks raised the issue of credit limit against the
background of an increasing amount of RMB deposits being placed by
Participating AIs with the Clearing Bank as the RMB business in
Hong Kong continued to expand and deepen. The HKMA and the PBoC
have held discussions about this issue, and it is considered that
the issue could in principle be resolved by the Participating AIs
establishing custodian accounts with the Clearing Bank. This means
that the RMB funds will be placed with the PBoC Shenzhen Branch
through the Clearing Bank as a custodian to overcome the issue of
credit limit. We will further discuss with the PBoC, the Clearing
Bank and Participating AIs on the details of such an arrangement
including the related legal documents and operational procedures.
It is hoped that the arrangement can be implemented soon early next
year.
Conclusion
- I believe that next year will be a crucial year for the
development of offshore RMB business in Hong Kong. We have made
very good progress this year. Along this positive trend, and with
the number of Mainland enterprises eligible for the cross-border
RMB trade settlement scheme increased substantially to 67,000
recently and with the refinements that we are going to introduce, I
am confident that the offshore RMB market in Hong Kong will
continue to develop progressively in the coming year, both in terms
of the depth and breadth of the market and product development.
Four Hong Kong banks have been approved to participate in the
Mainland's interbank bond market, and the applications by a number
of banks are being processed by the Mainland authorities. This will
provide a channel for the circulation and capital preservation for
the RMB funds in Hong Kong. Meanwhile, we have just been informed
that HKMA's eligibility for investing in the Mainland's interbank
bond market has been approved by the PBoC. We are working closely
with the PBoC on the implementation arrangements.
- Finally, to further promote the development of the RMB offshore
business in Hong Kong, the HKMA is making preparations for overseas
roadshows with the financial industry, focusing on locations which
have growing trade and investment flows with the Mainland. We
believe that with our joint efforts, Hong Kong will be able to play
its role as an RMB offshore market to the fullest, thereby
promoting and supporting the nation's increasing cross-border trade
and investment activities while enhancing and consolidating the
status of Hong Kong as an international financial centre.
