Entry of more players in renminbi business is good for Hong Kong
Anita Fung says Hong Kong has no reason to fear competition in the offshore renminbi business, given our ties with the mainland, and should seek instead to work with other centres
Years from now, when people look back at the renminbi's path to internationalisation, they will agree that May 2013 was a significant month. According to the Hong Kong Monetary Authority, it marked the first time that the volume of renminbi cleared under its real time gross settlement system exceeded that of the Hong Kong dollar. For the yuan, daily turnover was an average of 390 billion yuan (HK$494 billion); for the Hong Kong dollar, it was HK$487 billion.
This latest milestone is significant on two fronts. The first is the process of renminbi internationalisation itself. Since offshore renminbi business began in Hong Kong in 2004, 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. By 2015, that figure will jump to one-third, we estimate.
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 last year. Our forecast for this year is in the region of 280-360 billion yuan.
As the renminbi becomes more accepted as a global trade, investment and - ultimately - reserve currency, the volume cleared under the HKMA's real time gross settlement system will only increase. By itself, the fact that the renminbi (a not-yet fully convertible currency) has a higher daily turnover than the Hong Kong dollar (a fully convertible currency) is already a sign that international adoption is picking up. This milestone is just a foretaste of the renminbi's potential as China continues its currency reform.
The increasing volume of renminbi cleared in Hong Kong is also significant for the city and its status as the leading offshore renminbi centre. The first half of this year saw the establishment of two more offshore renminbi 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 - renminbi deposits surpassed 70 billion yuan. Meanwhile, in Singapore, 53 transactions worth 1.61 billion yuan were cleared on the day the renminbi business was launched.
But Hong Kong was not to be outdone. As of April, renminbi deposits in Hong Kong stood at 677.2 billion yuan; in the same month, Hong Kong settled 84 per cent of China's renminbi-denominated cross-border trade.
