Norman T L Chan: Brief remarks on the development of the RMB market
Opening remarks by Mr Norman T L Chan, Chief Executive of the Hong Kong Monetary
Authority, at the Second Hong Kong - Australia RMB Trade and Investment Dialogue,
Hong Kong, 22 May 2014.
* * *
Treasury Secretary (Martin) Parkinson, (Deputy Governor) Philip (Lowe), distinguished
guests, ladies and gentlemen:
1. Good morning. It is my great pleasure to welcome you to the second Hong Kong -
Australia RMB Trade and Investment Dialogue. I would like to especially extend a
warm welcome to our friends from Australia. This Dialogue attests to the spirit of
collaboration that we share, and indeed it is collaboration that will take us forward in
the development of the RMB market. The seminar today will be a good opportunity
for us to take stock of recent developments, exchange views and share
experiences, and identify our priorities ahead.
2. I recall that three years ago, in March 2011, I visited Sydney on a roadshow to talk
about Hong Kong's newly created offshore RMB business platform. This was in fact
the very first in a series of roadshows that I and my HKMA colleagues organised,
covering key markets in South America, Russia, Middle East, Japan, Spain, the UK
and the US. In our Sydney roadshow, I was particularly impressed by the keen
interest and high level of curiosity of the Australian audience, who wanted to
understand more what RMB internationalisation was all about and what it meant for
them as corporates with trading and investment links with China. We were then at
an early stage of this long and exciting journey of RMB internationalisation. At that
time, the cross-border RMB trade settlement scheme was still a "pilot" and only
covered selected provinces in the Mainland. RMB trade settlement handled by
banks in Hong Kong was only some RMB100 billion a month, which is less than
one-fifth of the RMB600 billion registered in March this year.
3. The offshore RMB market in Hong Kong has indeed achieved phenomenal progress
in the past three years. Hong Kong's RMB real time gross settlement system
registered an average daily turnover of close to RMB700 billion in April this year,
which is about twelve times the level when I visited Sydney in 2011. In the foreign
exchange market - another area where activities have picked up sharply - we are
seeing an average turnover of RMB spot and forward transactions of some
US$20 billion to US$30 billion equivalent every day. I also note that remarkable
developments have been achieved in Australia, with recent data suggesting that
Australia's RMB payments value increased by close to 2.5 times year on year. More
broadly speaking, the RMB is now the seventh most used payment currency
according to the Society for Worldwide Interbank Financial Telecommunication
(SWIFT), and the ninth most actively traded currency according to the Bank for
International Settlements (BIS).
4. To me, the extent and pace of the development of offshore RMB business depends
on three key factors. The first factor is the relaxation of controls and restrictions by
the Mainland authorities. The second factor is the availability of the necessary
financial market infrastructure, such as clearing and settlement systems. The third
factor is the awareness and willingness of corporates and financial institutions,
especially banks, to develop RMB business opportunities.
5. Since the RMB trade settlement pilot scheme was launched back in July 2009, the
Mainland authorities have incrementally removed many controls and restrictions on
the flow of RMB out of and into the Mainland. Presently all trade and current account
transactions between Mainland China and other parts of the world, as well as inward
and outward direct investment into and out of China, can be conducted in RMB.
Moreover, some cross-border portfolio investment flows, such as investments into
China's bond and equity markets, can also be made in RMB via the RMB Qualified
Foreign Institutional Investors (RQFII) scheme.
6. More importantly, in April this year the Mainland and Hong Kong authorities
announced a milestone project, i.e. the Shanghai-Hong Kong Stock Connect
scheme. The scheme, which is to be launched later this year, will allow Hong Kong
and international investors to invest in shares listed on the Shanghai Stock
Exchange through Hong Kong. At the same time, Mainland investors can invest in
shares listed on the Hong Kong Stock Exchange through Shanghai. This
unprecedented bridge linking the Hong Kong and Shanghai stock markets will
create an additional channel for cross-border portfolio investment flows using RMB.
Given all these relaxations and the new schemes permitting cross-border flows of
RMB, I think there is ample policy headroom for the offshore RMB markets to
develop and flourish. At the same time, we have seen the emergence of the
necessary financial infrastructure, not just in Hong Kong but also in many offshore
centres, that would facilitate efficient and safe clearing and settlement of RMB
transactions in the offshore markets.
7. As I said earlier, the pace of the development of offshore RMB business and
markets also crucially depends on the third factor, that is the role that the private
sector can and should play in the process. It is not likely that a market can thrive just
with policy headroom and financial infrastructure. Banks and other financial
institutions must develop their capability to satisfy their customers who have a need
or an interest in using RMB. Trading companies need trade finance in RMB.
Corporates investing in China need direct or indirect financing in RMB and asset
owners need a variety of RMB financial products. Many of them need to use
instruments to manage or hedge their RMB exposures. All these RMB related
financial services and products can only be developed by the markets and financial
institutions because they are closest to their customers and understand their needs
best. That is why it is so important for the HKMA to collaborate with our official
sector counterparts in Australia to create this private-sector led Dialogue. The first
Dialogue was held in Sydney in April last year, which was highly successful. I am
very pleased that it is Hong Kong's turn to host the second Dialogue and I am
confident that it will be equally if not more successful. I note that today's Dialogue
has a very rich agenda and I look forward to hearing useful and practical ideas and
suggestions on what the private sector can do on its own or in collaboration with the
official sector to further develop the offshore RMB markets in Australia and Hong
Kong.
8. Thank you very much.