Development of Hong Kong’s Offshore RMB Market and Its Prospects
Development of Hong Kong’s Offshore RMB Market and Its Prospects
I. The characteristics of Hong Kong’s offshore RMB market: policy-driven and market oriented
Looking back at the progress over the last ten years, evidently, Hong Kong’s offshore RMB market featured being both policy-driven and market-oriented. Since the People’s Bank of China gave the green light to overseas RMB businesses in 2003, every milestone achieved in market development has been closely connected with the relaxation of relevant regulations in Mainland China: In January 2007, the People’s Bank of China began to allow qualified domestic financial institutions to issue RMB-denominated bonds in Hong Kong. Since 2009, the Ministry of Finance has been issuing RMB sovereign bonds in Hong Kong, which led to the development of the local dim sum bond market. In July 2009, the launch of cross-border RMB trade settlement ushered in a second phase of RMB businesses in Hong Kong. In August 2011, the RMB trade settlement program was expanded to cover all Chinese territories. RMB businesses in Hong Kong were also extended from individuals to corporations and institutions. In 2011, the Chinese government implemented the RQFII program, which allows qualified foreign investors to invest in the domestic securities market. Since March, 2013, all financial institutions that are registered in Hong Kong or operate mainly in Hong Kong are qualified for the RQFII program. More importantly, the RMB capital flows have shifted from one-way flow back to the Mainland to flows in both directions, which represents a major step forward in the process of RMB internationalization. Hong Kong becomes a pioneer and center for global RMB product engineering and trading.
The development of offshore RMB market is highly dependent on market demand for RMB products. The demand of RMB products and transactions has been rising in recent years and expanding globally. Hong Kong has shown its first-mover advantage in breadth and depth over other offshore RMB markets on the basis of the amount of daily transactions and the variety of product choices, creating a virtuous cycle of demand and supply that leads to further expansion. RMB trade settlement processed by Hong Kong banks jumped from 369.2 billion Yuan in 2010 to 3.841 trillion Yuan in 2013 for an increase of over 10 times. As of the end of 2013, there were nearly 4.5 million RMB deposit accounts in Hong Kong, averaging 191,400 Yuan per account. By the end of 2013, Hong Kong had amassed the largest RMB pool of 1.053 trillion Yuan outside the Mainland, 191.3 billion Yuan of which being certificates of deposits. RMB deposits in Hong Kong’s banking system account for about 60% of the global total. The outstanding amount of Dim Sum bonds rose from 55.8 billion Yuan at the end of 2010 to 310 billion Yuan at the end of 2013 for an increase of 460%, propelling Hong Kong to become the largest offshore RMB bond market.
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