Dubai: China is making steady and gradual progress in the internationalisation of the renminbi (RMB) that will eventually result in it emerging as one of the leading global trade, investment and reserve currencies, Helen Wong, chief executive for Greater China at HSBC, told Gulf News in a recent interview.
“The People’s Bank of China [PBOC, China’s central bank] is committed to accelerating the process of internationalising the RMB. We are already seeing more people investing in China using RMB, including central banks and sovereign wealth funds (SWFs). Once you have more investors, it means more people outside of China are getting access to the currency, catalysing its international use,” said Wong.
Wider use of the RMB and the internationalisation of the currency is a gaining momentum. In stages, it involves using the currency for trade settlement, investment purposes and ultimately making it a reserve currency.
“We have been doing RMB surveys yearly for more than six years. In 2017, we surveyed more than 2,500 businesses across 19 markets and found 32 per cent using RMB for trade settlement — up from 17 per cent in 2015,” said Wong.
Capital markets boost
The use of RMB in investments has grown significantly because China has opened its doors further.
“In the course of [the] last three years we have seen the setting up of the Shanghai–Hong Kong Stock Connect and the Shenzhen–Hong Kong Stock Connect. The Bond Connect scheme launched last year has also further opened up access to China’s Interbank Bond Market. That means there are more ways for foreign investors to invest in RMB-denominated securities in China,” she said.
The Shanghai- and Shenzhen-Hong Kong Stock Connect schemes allow international investors to trade Chinese shares via Hong Kong, affording investors around the world direct access to most of the listed companies that are traded on the mainland.
China is actively pursuing its plans for ‘Shanghai–London Stock Connect’ scheme. Last week China published rules for a cross-listing programme between exchanges in Shanghai and London, clearing the way for companies to press ahead with plans to debut on each other’s bourses.
Last year’s establishment of Bond Connect, a trading link that connects global investors with China’s $9.6 trillion (Dh35.26 trillion) Interbank Bond Market, has been well received. Foreign holdings of Chinese bonds increased by $4.4 billion in September, marking the 19th consecutive month of inflows.
Under the Bond Connect programme, foreign investors are able to invest in domestic Chinese bonds directly through Hong Kong, using mutual access arrangements for trading, custody and settlement. Eligible investors are mainly institutions, such as banks, insurance companies, brokerages and asset management firms.
China’s rapidly expanding bond market is the world’s third-largest, but foreign participation has been limited: international investors own just over 8 per cent of China’s government bond market, compared over 10 per cent in Japan, nearly 30 per cent in the UK, and over 40 per cent in the US. The gradual opening of China’s bond market will offer abundant opportunities to issuers, investors, and all the intermediaries in between.
The three ‘Connect’ schemes — Bond Connect, Shenzhen Connect, and the Shanghai Connect that was launched since 2014 — have made the inclusion of mainland Chinese bonds and stocks in global indices possible.
Bloomberg recently announced that it will add Chinese RMB-denominated government and policy bank securities to the Bloomberg Barclays Global Aggregate Index, once several planned operational enhancements are implemented by PBOC and Ministry of Finance. The addition of these securities will be phased in over a 20-month period starting April 2019.
When fully accounted for in the Global Aggregate Index, local currency Chinese bonds will be the fourth-largest currency component following the US dollar, the euro and the Japanese yen. Using data as of January 31, 2018, the index would include 386 Chinese securities and represent 5.49 per cent of a $53.73 trillion index.
The Belt and Road Initiative too is expected to speed up the RMB internationalisation. The initiative will boost trade along the Belt and Road route, as well as the use of the RMB as a trade currency.
Wong expects the opening of Chinese capital markets along with RMB trade settlements driven by trade growth from a Belt and Road Initiative to support the growth of HSBC’s financial markets, trade and payments business in the years ahead.
HSBC to go full steam ahead with mainland expansion plans
HSBC is poised for further expansion in China, with a strong focus on the fast-growing Pearl River Delta (PRD) region in Guangdong Province.
HSBC’s choice of the PRD as the cutting edge of its China strategy is clearly driven by the region’s proximity to Hong Kong and huge business opportunities in the highly innovative and technology driven businesses in what is known as China’s ‘Silicon Delta’.
The PRD is across the border from Hong Kong. Policymakers both in Hong Kong and on the mainland are working on projects to strengthen commercial links between Hong Kong, Macau and Guangdong through the Greater Bay Area scheme.
“We are present in all the major cities in the PRD and have close to 3,000 people working in our banking operations in the region. We have done a lot with the technology companies in Shenzhen. In fact, we had set up a 2 billion yuan [Dh1.05 billion] Innovation Fund to lend to companies in the new economy sectors that was very enthusiastically received by customers,” said Wong.
The bank launched HSBC Qianhai Securities in December last year after winning approval to own 51 per cent of the joint venture (JV). It is the first and only Chinese securities joint venture to be majority owned by a foreign bank. The JV, in Shenzhen’s Qianhai financial district, has been rapidly scaling up in recent months and offers global and domestic clients services such as capital markets underwriting, mergers and acquisitions advice and securities brokerage and research.
The Qianhai joint venture is part of a wider growth strategy for HSBC in China, which has a particular focus on the PRD and work related to China’s Belt and Road Initiative. HSBC’s PRD-related business will include retail and commercial banking as well as the new securities business. On the retail side, the bank is focusing on technology, especially mobile propositions.