Bank of China HK calls for greater Rmb understanding

Author: | Published: 23 Sep 2011
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Bank of China (Hong Kong) has urged overseas issuers to get better acquainted with the offshore renminbi products on offer.

The bank’s deputy general manager of global markets, Tony Wang, told IFLR that economic uncertainty in the Eurozone had provided a good reason for European and US corporations to tap the offshore renminbi market, particularly for those who have large operations in Mainland China.

However, he advised new entrants to the market to familiarise themselves with the currency and the policies that had been in put in place to-date to govern its internationalisation.

“New issuers must stop thinking of renminbi as this mysterious product,” he said. “It is no different to any other currency.”

But the policies under which offshore renminbi funds can be utilised, traded and remitted onshore comprise a huge system. “It is critical for would-be issuers to be aware of the regulations in place before deals go ahead,” he said.

It is particularly important for those new entrants to first obtain approval from Chinese authorities, if they want to repatriate renminbi funds back to Mainland China. “Otherwise, the process for approval could take time, and extra costs may be incurred as a result of the delay,” he said.

The market is growing increasingly mature and its investor base more discerning, he said. But it had been affected by volatility in the international credit markets. “The investor base is today much more cautious, and more willing to park cash,” he said.

Even so he remained bullish on the future of the market. “Everything happening in other currencies can happen here,” he said.

Certainly, there has been positive momentum in terms of renminbi market developments in recent months.

In August, China’s vice-premier Li Keqiang announced that China’s central government would support Hong Kong enterprises making direct investment on the mainland in renminbi and that pilot projects would be launched to enable foreign banks in the city to replenish capital with the currency.

In doing so, he provided much-needed clarity on China’s policy direction, and helped to clear a number of barriers hindering market development, in particular those governing repatriation of renminbi to the mainland.

“Li revealed more than expected,” said Wang. “He also indicated a lot of areas that could be explored to help the real economy in Hong Kong.”

Clearly China’s central government is trying to encourage mainland enterprises to tap international markets for their overseas direct investments. There is expected to be more room for people to use overseas accounts in a number of projects, as well as more scope to use renminbi capital accounts.

The People’s Bank of China aims to facilitate renminbi use in international markets. “As China is a big player in terms of international trade, it is right to say that its currency shall enjoy a status as favourable as other currencies do,” said Wang.

Wang anticipated steady market growth from here. “There is scope for a whole suite of new products to come out in the offshore renminbi market,” he said. “But it will be a gradual process.”

Simpler products in the debt finance space as well options, interest rate swaps and other interest-bearing products would develop first, he said.

While, more exotic instruments such as derivatives and bundled packages would follow when the market was ready. “We are at the beginning of this,” he said. “China is having constant contact with international markets. However, its financial systems are different from other countries’, and it may take time to be fully connected globally.”

Wang’s comments come as Hong Kong’s Securities and Futures Commission (SFC) announced Hong Kong’s regulatory platform was ready to authorise retail fund products managed by holders of renminbi Qualified Foreign Institutional Investors (RQFII) quotas.

SFC’s acting chief executive officer said that adding the Rmb20 billion RQFII quota was an encouraging start to accelerating the pace of transforming renminbi into an internationally accepted and widely used currency.