hkma-rmb-booklet

The Premier Offshore Renminbi Business Centre HONG KONG Why Conducting Trade and Investment in Renminbi 2 Hong Kong : Best Place for Your Offshore Renminbi Business 5 Global Hub for Renminbi Trade Settlement 7 Global Hub for Offshore Renminbi Financing and Wealth Management 8 Global Platform for Renminbi Clearing and Settlement 11 Other Unique Features of Hong Kong as an International Financial Centre 16 Development of Offshore Renminbi Business in Hong Kong 19 Frequently Asked Questions 20 List of Participating Banks of the Renminbi Clearing Platform in Hong Kong 22 2 Hong Kong The Premier Offshore Renminbi Business Centre Over the past twenty years, China has achieved a phenomenal seventeen-fold increase in its GDP, from less than US$400 billion in 1990 to over US$7 trillion in 2011. China’s trade and foreign direct investment have also grown significantly from around US$100 billion to nearly US$4 trillion in the same period. China is now the second largest economy and trading country in the world. The International Monetary Fund has projected that China will contribute to more than one-third of global growth by 2015. Why Conducting Trade and Investment in Renminbi 3Hong Kong The Premier Offshore Renminbi Business Centre As China’s economy becomes increasingly integrated with the rest of the world, it is a natural trend for its currency, renminbi, to become more widely used in trade and investment activities. In 2009, China launched a pilot scheme for renminbi trade settlement. The scheme was further expanded subsequently. Enterprises in all provinces and cities in China can now settle their trade transactions in renminbi with any part of the world. The percentage of China’s total trade that is settled in renminbi has been increasing rapidly, from 2% in 2010 to nearly 8% in 2011. Investments between China and the rest of the world can also be conducted in renminbi. Chinese enterprises can now conduct overseas direct investment in renminbi under a scheme introduced in January 2011. Foreign direct investment into China can also be made in renminbi under the administrative rules promulgated in October 2011. Key benefits of using renminbi to conduct trade and investment activities with China Improved pricing competitiveness through the elimination of currency exchange costs and risks involving a third currency. Enlarged client base and business partners in China to include customers and suppliers who prefer to settle transactions in renminbi. Shortened settlement cycle which allows business to be done more efficiently. 4 Hong Kong The Premier Offshore Renminbi Business Centre 5Hong Kong The Premier Offshore Renminbi Business Centre Hong Kong is an established international financial centre and the pioneer in offshore renminbi business. Hong Kong was the first offshore market to launch renminbi business back in 2004. With proven experience, a comprehensive range of offshore renminbi products and services has been developed to meet business needs of both local and foreign companies and financial institutions. China’s Twelfth Five-Year Plan for Economic and Social Development supports the development of Hong Kong as an offshore renminbi business centre and reinforces Hong Kong’s status as an international financial centre. A series of supportive measures (as announced by Chinese Vice Premier Li Keqiang during his visit to Hong Kong in August 2011) has been introduced, including expansion of the geographical coverage of the renminbi trade settlement scheme to the entire Mainland China, promulgation of the administrative arrangements for renminbi foreign direct investment and introduction of the Renminbi Qualified Foreign Institutional Investors scheme. These measures enhance the use and circulation of renminbi funds between the onshore and offshore markets, facilitating the further development of Hong Kong as the offshore renminbi business centre. Hong Kong : Best Place for Your Offshore Renminbi Business 6 Hong Kong The Premier Offshore Renminbi Business Centre Offshore renminbi business in Hong Kong at a glance Renminbi retail and corporate banking • Deposits — conventional and structured deposits, certificates of deposit • Currency exchange • Cheques • Bank cards • Remittance • Financing — trade financing, other kinds of loans and advances • Wealth management products (e.g. renminbi bonds) Renminbi capital market • Debt origination • Investment funds (with access to both onshore and offshore markets) • Commodity-linked products • Real Estate Investment Trust (REIT) • Exchange-Traded Fund Renminbi money and forex market • Spot FX • Forward FX • Non-deliverable forward • FX options Renminbi insurance • Insurance plans and products Potential products • Equity financing • Derivatives • Reinsurance 7Hong Kong The Premier Offshore Renminbi Business Centre With the introduction and the subsequent expansion of the pilot scheme for renminbi trade settlement, trade transactions settled in renminbi through banks in Hong Kong increased from a monthly average of about RMB31 billion yuan in 2010 to RMB160 billion yuan in 2011. In 2011, renminbi trade settlement handled by banks in Hong Kong amounted to RMB1,915 billion yuan, as compared to the total amount of Mainland China’s external trade settled in renminbi of RMB2,081 billion yuan. This reflects Hong Kong’s role as the global hub for renminbi trade settlement, serving both local and overseas banks and companies. Global Hub for Renminbi Trade Settlement 8 Hong Kong The Premier Offshore Renminbi Business Centre Hong Kong hosts the largest pool of renminbi liquidity outside Mainland China. At the end of 2011, offshore renminbi deposits in Hong Kong reached nearly RMB600 billion yuan. About 70% of the renminbi deposits were held by corporate customers, over 15% of which were from overseas. This sizeable liquidity pool is meeting increasing global demand for renminbi financing and investment. Global Hub for Offshore Renminbi Financing and Wealth Management The Hong Kong market of renminbi bonds (dim-sum bonds) is the largest outside Mainland China. In 2010, renminbi bonds totalling RMB36 billion yuan were issued by 16 issuers. In 2011, there were issuances of over RMB100 billion yuan by 81 issuers, three times the total of 2010. Over the years, the range of issuers in the renminbi bond market in Hong Kong has diversified from predominantly the sovereign (Ministry of Finance of China) and banks in Mainland China (e.g. China Development Bank) to Hong Kong and multinational companies (e.g. Hopewell, a Hong Kong-based infrastructure company, McDonald’s, Volkswagen) and international financial institutions (e.g. Asian Development Bank). Since 2011, the scope of issuers further expanded to include non-bank institutions in Mainland China (e.g. Baosteel). 9Hong Kong The Premier Offshore Renminbi Business Centre Besides issuance of renminbi bonds, bank borrowings and other forms of renminbi financing are also available to companies. The outstanding renminbi loans in Hong Kong reached over RMB30 billion yuan at the end of 2011. The platform for equity financing in renminbi is also readily available. Hong Kong has a wide range of renminbi financial products ranging from certificates of deposit, fixed income funds to insurance policies to meet different needs of investors. Particularly, investors can invest in products with access to Mainland China’s bond and equity markets through arrangements such as investments by offshore banks in Mainland China’s interbank bond market and the Renminbi Qualified Foreign Institutional Investors (RQFII). The listing of the first renminbi Real Estate Investment Trust (REIT) in April 2011 further illustrates that the renminbi platform in Hong Kong can support the listing and trading of renminbi securities. How banks and companies capture benefits of the renminbi bond market in Hong Kong Companies • Benefits of raising renminbi funds through a cost-effective platform based on international practices • Great flexibility in managing renminbi funds raised in the offshore market • Ideal platform for financing investments in Mainland China (remittance of proceeds to Mainland China subject to rules and regulations in Mainland China) Banks and financial institutions • New market with growing demand from investors and issuers globally • New business for origination, distribution, investment and trading services 10 Hong Kong The Premier Offshore Renminbi Business Centre Renminbi bond market in Hong Kong at a glance Issuers • Ministry of Finance of China • Financial institutions or companies in Mainland China (subject to approval by the relevant authorities in Mainland China) (e.g. China Development Bank, Baosteel) • International financial institutions (e.g. Asian Development Bank, the World Bank) • Financial institutions or companies incorporated outside Mainland China (e.g. Hopewell, McDonald’s, Volkswagen) Investor base • Commercial and private banks, insurance companies, investment funds and corporates from Hong Kong and overseas • Offering and marketing activities are subject to existing requirements under applicable law in Hong Kong 11Hong Kong The Premier Offshore Renminbi Business Centre Hong Kong has developed a highly efficient and reliable renminbi clearing platform — the renminbi Real Time Gross Settlement (RTGS) system — to support banks from all over the world in developing various kinds of offshore renminbi business. The renminbi RTGS system in Hong Kong is linked up with China National Advanced Payment System (CNAPS), the large-value renminbi payment system in Mainland China. From June 2012, the operating hours of the renminbi RTGS system will be extended to 15 hours, serving from 08:30 to 23:30 (Hong Kong time). This facilitates financial institutions in different time zones to settle offshore renminbi payments through the Hong Kong infrastructure. Global Platform for Renminbi Clearing and Settlement 12 Hong Kong The Premier Offshore Renminbi Business Centre At the end of 2011, there were a total of 187 banks participating in the renminbi clearing platform in Hong Kong, of which 165 were branches and subsidiaries of foreign banks and overseas presence of Chinese banks. This has formed a global payment network covering more than 30 countries in six continents, capable of handling renminbi transactions between Mainland China and overseas and among different offshore markets. Overseas banks have already maintained over 900 renminbi correspondent banking accounts with banks in Hong Kong to meet the increasing demand of offshore renminbi business from their local customers. 13Hong Kong The Premier Offshore Renminbi Business Centre Features of the renminbi RTGS system in Hong Kong System support • SWIFT-based RTGS platform • Seamless interface with CNAPS (i.e. RTGS system in Mainland China) • Linkages among renminbi, Hong Kong dollar, US dollar and Euro RTGS systems • Interface with securities clearing and settlement systems (Central Moneymarkets Unit and Central Clearing and Settlement System) Liquidity • Deposit base • Interbank money market • Securities issuance • Financing provided by the clearing bank • Currency swap arrangement between the Hong Kong Monetary Authority and the People’s Bank of China Legal protection • Settlement finality according to the Clearing and Settlement Systems Ordinance in Hong Kong In addition to the renminbi RTGS system, there are three other RTGS systems operating in Hong Kong — the Hong Kong dollar, US dollar and Euro RTGS systems. Together, these four systems formed a multi-currency clearing and settlement platform. Foreign exchange transactions can be settled via payment-versus-payment (PvP) to improve settlement efficiency and to eliminate settlement risks arising from time lags in settlements or from time zone differences. In 2011, the volume of renminbi-related PvP transactions amounted to about RMB2,423 billion yuan. 14 Hong Kong The Premier Offshore Renminbi Business Centre How banks can trade and settle foreign exchange transactions involving renminbi Trading: Electronic trading platforms, such as Reuters, are available for banks to trade major currency pairs such as USD/CNY in the offshore renminbi market. Settlement in the US dollar and renminbi RTGS systems in Hong Kong: • Allows PvP settlement of USD/CNY foreign exchange transactions • Supports transactions to be effected in the Asian time zone • Helps to eliminate settlement risks for the banks and addresses counterparty risks/limit issues • Introduces a cost effective means to meet international best practices • Offers better liquidity management How banks and companies capture benefits of the renminbi RTGS system in Hong Kong Banks in Hong Kong or any part of the world can join the renminbi RTGS system directly by opening renminbi accounts with the clearing bank. Overseas banks and financial institutions can also choose to join the system indirectly via a correspondent bank in Hong Kong. Companies can enjoy the benefits of the renminbi RTGS system for efficient and reliable cross-border payment services by opening renminbi accounts with any participating bank of the renminbi RTGS system. Photo to be inserted 16 Hong Kong The Premier Offshore Renminbi Business Centre The premier international financial centre in Asia Hong Kong, with its world class business environment and full integration with the rest of the world, is consistently ranked as a top-tier global financial centre. The presence of about 70 out of the top 100 global banks in Hong Kong is a key evidence. Hong Kong is the global leader in equity funding. In 2011, a worldwide highest level of US$33 billion equity funds was raised through initial public offerings in Hong Kong. The stock market in Hong Kong is the seventh largest in the world and the third most capitalised in Asia. The history and cultural connection between Hong Kong and Mainland China is unique. The flow of people, goods, capital and information further distinguish Hong Kong from other international financial centres and cities. Currently 7,000 enterprises from Mainland China and overseas are based in the city to enjoy this unique connection that Hong Kong offers. Other Unique Features of Hong Kong as an International Financial Centre 17Hong Kong The Premier Offshore Renminbi Business Centre Gateway for Mainland China’s trade and investment Hong Kong is the key intermediary platform for Mainland China’s trade with the rest of the world. Some 30% of Mainland China’s trade volume is intermediated by Hong Kong in the form of offshore trade or re-exports. Hong Kong is the largest source of foreign direct investment for Mainland China, accounting for about 60% of the total amount. At the same time, Hong Kong is the largest recipient of outward direct investment from Mainland China, being either the beneficiary or intermediary of about 60% of such investment. These underscore Hong Kong’s unique role as both the gateway for foreign companies to access the market in Mainland China and the springboard for institutions in Mainland China to gain exposure to international markets. 19Hong Kong The Premier Offshore Renminbi Business Centre January 2004 Personal renminbi business commenced. July 2007 The launch of the first issue of renminbi bonds in Hong Kong. July 2009 The pilot scheme for renminbi trade settlement commenced operation. September 2009 The first renminbi sovereign bond by the Ministry of Finance of China. February 2010 The Hong Kong Monetary Authority issued a circular to elucidate the supervisory principles and the operational arrangements regarding the cross-border fund flows of renminbi and the development of renminbi business in Hong Kong. June 2010 The geographical coverage of the pilot scheme for renminbi trade settlement was expanded. July 2010 The Clearing Agreement for renminbi business was amended to facilitate development of renminbi asset management and insurance products. August 2010 Announcement of a pilot scheme for the renminbi clearing bank and other eligible institutions outside Mainland China to invest in the interbank bond market in Mainland China. November 2010 Renminbi sovereign bonds issued through the Central Moneymarkets Unit. December 2010 The number of eligible enterprises in Mainland China that can settle merchandise exports in renminbi expanded from 365 to 67,359. January 2011 Enterprises in Mainland China allowed to conduct and settle overseas direct investment in renminbi, and banks in Hong Kong can provide renminbi funds to facilitate such transactions. August 2011 The geographical coverage of the pilot scheme for renminbi trade settlement was further expanded to the entire Mainland China. October 2011 Arrangement for foreign enterprises to conduct and settle foreign direct investment into Mainland China in renminbi formalised. December 2011 Foreign investors allowed to invest in Mainland China’s bond and equity markets through funds issued by qualified fund management and securities companies in Hong Kong under the Renminbi Qualified Foreign Institutional Investors (RQFII) scheme. March 2012 All enterprises in Mainland China can settle their trade in renminbi. Development of Offshore Renminbi Business in Hong Kong 19Hong Kong The Premier Offshore Renminbi Business Centre 20 Hong Kong The Premier Offshore Renminbi Business Centre Opening renminbi bank account Q1. Can any overseas company or financial institution open a renminbi bank account? A1. Yes, any overseas company or financial institution can open a renminbi bank account with any bank in Hong Kong. Renminbi remittance, clearing and settlement Q2. Is there any restriction on fund transfers into and out of renminbi accounts opened with banks in Hong Kong? A2. No, there is no restriction in Hong Kong on renminbi fund transfers. Cross-border fund transfers to and from Mainland China are subject to relevant rules and regulations in Mainland China. Q3. How can banks handle renminbi clearing and settlement? A3. Any bank in Hong Kong or in any part of the world can do so by participating directly in the renminbi clearing platform in Hong Kong or participating indirectly through their branches or subsidiaries in Hong Kong. The Bank of China (Hong Kong) Limited is currently the clearing bank of the renminbi clearing platform in Hong Kong. At the same time, overseas banks can also make use of settlement services provided by banks in Hong Kong that are participants of the renminbi clearing platform in Hong Kong. Currency exchange Q4. Is there any limit on the amount of renminbi that can be purchased or sold by companies with banks in Hong Kong? A4. There is no specific limit on such transactions at the customer level. Transaction amounts depend on the renminbi liquidity pool of banks and prevailing market conditions. Q5. Where do banks in Hong Kong get renminbi for conducting currency exchange with customers? A5. Banks conduct foreign exchange trading of renminbi in the offshore renminbi market in Hong Kong. Currently, the daily turnover of the Hong Kong offshore renminbi market (including both spot and forward transactions) is around US$3–5 billion, based on market estimates. In addition, for renminbi exchange conducted by banks with their customers for settlement of trades involving Mainland China, the banks concerned can square the relevant positions in the Shanghai foreign exchange market through the clearing bank of the renminbi clearing platform in Hong Kong. Furthermore, where necessary, banks in Hong Kong can also obtain renminbi funding from the Hong Kong Monetary Authority, which stands ready to p