More time needed to turn HK into a fully developed offshore center

Hong Kong's efforts in becoming an offshore center for yuan products may be bearing fruit, but it could be another 20 years before the market is fully developed, a panel of bankers and experts said at a conference Tuesday.

At a conference held by the Hong Kong Institute of Bankers (HKIB), bankers, regulators and industry consultants looked at the city's renminbi business opportunities. The consensus is that it will take 20 years before the yuan will be fully adopted as an investment and reserve currency in Hong Kong.

"It took no more than 20 years for Hong Kong to develop into an aviation and financial center," said Shou Fugang, chief executive officer of the Bank of Communications (Hong Kong). "Likewise, to have an offshore renminbi market fully set up in Hong Kong within the next 20 years won't be unachievable."

So far, mainland renminbi deposits total some 80,000 billion yuan and is expected to reach 100,000 billion in the next few years. By contrast, Hong Kong's total renminbi deposits is just a little over 100 billion yuan.

"The offshore renminbi business is still in its infancy. The renminbi deposits and bonds recently launched in Hong Kong represent a very small step we have taken toward building the offshore renminbi market," said Ba Shusong, vice director of the Financial Research Institute under the State Council.

Ba said that an offshore yuan market will only mature to the point that a sizeable renminbi business and a wide range of renminbi products are delivered in the Hong Kong market. The yuan could circulate in the Hong Kong market just as the US dollar does in the London market.

A mature offshore market should also come from increased use of the yuan as an investment and reserve currency and not just as a settlement currency, argued Wing Lung Bank Chief Executive Officer Zhou Qi.

"This year is bound to see a huge increase in the use of the renminbi as a settlement currency, and which will maintain double-digit growth in the years ahead," Zhou said.

However, even double-digit growth is still not enough, says Ba. Currently, US dollar deposits account for one third of Hong Kong's total deposits. Even if yuan deposits grow to the same proportion as that of the US dollar - translating into some 2,000 billion yuan - that is still far short of the 80,000 billion deposits seen on the mainland.

To effectively expand the city's yuan market, Ba suggested that efforts should be made to speed up the development of Hong Kong's yuan business. They include measures such as expanding the yuan bond market, increasing its use in overseas investment, and encouraging more companies in Hong Kong to use the currency for settlement purposes.

"There are still a lot more efforts we have to make to enhance the mobility of the renminbi in Hong Kong, which will not only help cement Hong Kong's status as an international financial hub, but also helps step up the internationalization of the Chinese currency," Ba said.

China Daily

(HK Edition 09/22/2010 page2)