eddie yue : renminbi – a new era and the role of hong kong keynote address by mr eddie yue, deputy chief executive of the hong kong monetary authority, at the global offshore rmb funding forum 2012, hong kong, 23 may 2012. * * * tony ( shale ), mark ( johnson ), distinguished guests, ladies and gentlemen, thank you for being here this morning, and thanks to euromoney for inviting me to speak at this “ global offshore rmb funding forum ”. it ’ s indeed an honour to have this opportunity to discuss this important topic in such distinguished company. i understand that we will have a very comprehensive programme today, with editors, economists, bankers and financiers talking about the exciting developments of dim - sum bonds and other innovative products in the offshore rmb markets. by way of opening the dialogue, i ’ d like to focus my remarks on the bigger picture, and on three things in particular : first, the scale of change in the global economy, which is the backdrop for our discussion ; second, the expanding role of the rmb, past and future ; and third, the impact this all has on our role and opportunities here in hong kong. china ’ s increasing integration with and contribution to the world economy so, first, the scale of change. the foundation for any discussion on the role of the rmb, of course, is china ’ s growing economy. now, we ’ ve all become very familiar with breathless reports on china ’ s “ economic miracle, ” so i won ’ t go over this at length. still, the startling pace of growth does warrant underlining. in a little over a decade since the year 2000, the mainland ’ s nominal gdp increased sixfold from 1. 2 to 7. 2 trillion us dollars ; and its external trade expanded more than sevenfold, from less than 500 billion to over 3. 6 trillion us dollars. at the same time, its cross - border direct investments rose fourfold, from just over 40 billion to approaching 180 billion us dollars. these are all impressive indicators of the vast amount of business opportunities present. it is perhaps even more astonishing that, by 2016, the mainland is expected to contribute over a third of total world economic growth, according to the projections of the international monetary fund. change in the international financial system such shifts in the global economy have inevitably foreshadowed a change in the international financial system. as the mainland economy has grown, its currency and financial

been the largest recipient of odi flows from the mainland. at present, about 60 % of odi from the mainland has gone to hong kong or via hong kong to other places. the significant share of hong kong in mainland ’ s fdi and odi underscores the unique role of hong kong as a gateway for foreign enterprises to access the mainland market, while at the same time being a springboard for mainland institutions to gain exposure to international markets. with respect to portfolio investment flows, market attention has been focusing on portfolio flows from advanced economies towards mainland china. in my view, portfolio flows in the opposite direction – i. e. portfolio outflows from mainland china – will also present huge bis central bankers ’ speeches opportunities to the asset management industry, especially given the fact that the mainland economy is the single largest provider of savings in the world. currently, outward portfolio investment ( opi ) from the mainland is only around 5 % of its gdp, still far below 57 % for east asia, 42 % for the us and over 100 % for the uk. our inhouse research findings show that an economy ’ s portfolio investment outflows as a percentage of gdp tend to grow along with the level of economic development measured by per capita gdp. so, given the huge potential outward portfolio investments from mainland china, how will they be allocated across different financial markets? our researchers have studied this particular subject in depth and found that the home bias is still very much there, i. e. the closer the potential investment destination to mainland china, the more opis it will receive from mainland china. as such, hong kong is likely to be one of the key destinations of mainland ’ s opis and the amount of those opis hong kong will receive will increase as china ’ s gdp grows. apart from being the final destination for these investments, hong kong can also act as an ideal launch platform for these investment flows to reach other major global markets. since the introduction of the qdii scheme, about us $ 67 billion worth of investment quotas have been granted up to september 2010. it is likely that a significant portion of these moneys is managed out of hong kong. in fact, over 40 mainland companies providing fund management, securities and futures, insurance, and other services have already established a presence in hong kong to manage the funds flowing out of the mainland and engage in fund advisory businesses. we expect the process of financial liberalisation in mainland china to be a gradual and controllable one,