The CEO of Hong Kong Exchanges and Clearing (HKEx) has admitted the benefits of renminbi (RMB) internationalisation will be “intangible” in the short term but stressed Hong Kong’s role in supporting China’s currency ambitions is an “enormous business opportunity” for the exchange.
The comments from Charles Li, who has led HKEx since June 2009 having previously been responsible for all of J.P. Morgan’s businesses in China, are part of a new blog published on the exchange’s website on 3 January.
“Hong Kong is the mainland’s only natural choice for the internationalisation of the RMB,” wrote Li. “In the early days of this process, Hong Kong can play the role of a nursery to provide a safe and reliable testing ground.”
He said while the absence of mainland mechanisms such as interest rate, exchange rate and capital controls were yet to be adjusted to suit the liberalisation of the Chinese currency, he emphasised these were not necessarily required immediately.
“The RMB internationalisation can help apply pressure and speed up the implementation of necessary reforms of top-level mechanisms,” Li added.
There are currently relatively few options for the RMB to be repatriated for investment purposes, meaning currency flows have so far been outbound rather than inbound.
While he recognised the absence of offshore RMB products meant many deposits quickly return to the mainland, Li noted the nature of deposits had changed and many were now owned by non-Chinese citizens who had the ability to cross the border more freely.
“In the future, when the offshore RMB eco-system is further developed, international confidence in the currency will increase and offshore RMB will stay overseas for a longer period of time,” he said.
Toward the end of 2011, regulatory authority the China Securities Regulatory Commission began allowing qualified foreign institutional investors to invest up to 20 billion offshore RMB in domestic securities in a bid to further boost use of the currency. Li said HKEx would play a role in promoting the development of the RMB in interest rate, currency and commodity derivative instruments.
HKEx listed the first offshore RMB-denominated IPO in May last year with the Hui Xian Real Estate Investment Trust (REIT). However, weakening retail sentiment and institutional concerns over deal pricing and settlement processes were cited for the REIT’s poor initial performance.
RMB deposits in Hong Kong stood at 553.6 billion yuan as of June 30, 2011, up 57% from year-end 2010, according to the Hong Kong Monetary Authority.
The internationalisation of the RMB forms the most significant component of HKEx’s three-year development plan, which was initiated in March 2010. The plan also included a major technology upgrade and other improvements to market structure.