The rightful place of Hong Kong in the yuan's internationalisation

According to the Hong Kong Monetary Authority, that was the first time that the volume of renminbi cleared under HKMA’s Real Time Gross Settlement (RTGS) system exceeded that of the Hong Kong dollar. For the yuan, daily turnover was 390 billion (HK$494 billion, or Bt1.97 trillion); for the Hong Kong dollar, it was 487 billion (Bt1.94 trillion). 

This latest milestone is significant on two fronts. The first is the process of yuan internationalisation itself. 

Since offshore yuan business began in Hong Kong in 2004, mainland China has heavily promoted the use of its currency in global trade and investment. In 2012, 12 per cent of China’s cross-border trade – amounting to 2.94 trillion yuan – was settled in renminbi. HSBC estimates that by 2015 the figure will jump to one-third. 

Likewise, yuan-denominated cross-border investment is on the rise. Since the launch of the first dim sum bond, market issuance in Hong Kong has grown from 10 billion yuan in 2007 to 276 billion yuan in 2012. HSBC’s forecast for 2013 is in the region of 280 billion to 360 billion yuan. 

As the yuan becomes more accepted as a global trade, investment and – ultimately – reserve currency, the volume cleared under HKMA’s RTGS system will only increase. In fact, that the yuan (not yet a fully convertible currency) has a higher daily turnover than the Hong Kong dollar (a fully convertible currency) is a sign that international adoption is already picking up. This milestone is just a foretaste of the yuan’s potential as Beijing continues its currency reform. 

The increasing volume of renminbi cleared in Hong Kong is also significant for Hong Kong and its status as the leading offshore yuan centre. 

The first half of 2013 saw the establishment of two more offshore yuan hubs – Taiwan in February and Singapore in May. Sceptics feared that Hong Kong would lose its lead. Encouraging data coming out of the new hubs only reinforced their supposed concerns. 

On June 11 in Taiwan – just over four months after renminbi business kicked off – yuan deposits surpassed 70 billion yuan. Meanwhile, in Singapore 53 transactions worth 1.61 billion yuan were cleared on the day renminbi business was launched. 

But Hong Kong was not to be outdone. As of April, yuan deposits in Hong Kong stood at 677.2 billion yuan; in the same month, Hong Kong settled 84 per cent of China’s yuan-denominated cross-border trade. 

Hong Kong is in an enviable position. Because of its historic and geographic ties with China, it owns a “first-mover” advantage. Also, it is often the testing ground for the central government’s experiments with its currency. 

The city’s list of “firsts” is extensive. It was one of the first areas outside mainland China covered by the pilot scheme for cross-border trade settlement; it is home to the first dim sum bond market; and with the development of Shenzhen’s new Qianhai enterprise zone, it will soon become the first offshore participant in China’s domestic lending market since 1949. 

It is precisely because of Hong Kong’s special relationship with China that it should not view Taiwan and Singapore as threats. Rather, they should be its collaborators. Offshore yuan business is still in its infancy, and considerably more can be achieved through cooperation. This is not a zero-sum game. As the leading offshore centre, Hong Kong should take the initiative and work with Taiwan and Singapore (and any and all that may follow) to make the pie that is offshore yuan business bigger. What is good for the yuan is good for Hong Kong. 

At the same time that Hong Kong fosters greater collaboration with other centres, it should continue to develop new instruments that can contribute to further utilisation of the yuan around the world. Hong Kong sits atop the largest yuan liquidity pool outside mainland China. As of the first quarter of 2013, the size of the pool (including deposits and certificates of deposit) was more than 800 billion yuan. HSBC estimates the figure will increase threefold by 2015. This represents a huge demand for yuan products and services. 

Yuan internationalisation will continue, and Hong Kong will remain the leading offshore renminbi centre. 

Rather than worrying about losing its edge to phantom competitors, the city should remain focused and keep up the good work it has done – and that is to help drive the yuan to become a global currency. 

 

Anita Fung is Hong Kong chief executive officer of HSBC.