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February 2012 - Issue 120
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The Global Investor is a monthly
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The Next Major World Currency
Hong Kong on a mission to become the global hub for full range of financial and trade transactions involving Chinese renminbi. By Umesh pandey
Turning the Chinese renminbi into an international currency, with Hong Kong as the global hub for renminbi trade, is the latest step in the territory's drive to be a top financial centre.
"We want to expand the renminbi to the rest of the world," said K.C. Chan, the secretary for Financial Services and the Treasury for the Hong Kong SAR.
Mr Chan sees a big role for the renminbi in raising funds via debt instruments or through equity instruments. "If the renminbi is to be used as an international currency then it has to be used around the world and that's our aim to help make it happen," he said.
The greater the use of the renminbi, the greater the benefit to Hong Kong as a competitive international capital market destination. The Beijing government fully supports the idea, he added.
In fact, the use of renminbi in Hong Kong has been flourishing. At present there is an estimated 600 billion renminbi circulating in the territory _ and that figure excludes the bond market, according to Lawrence Fok, chief marketing officer of Hong Kong Exchange and Clearing Ltd (HKEx), the listed holding company of the operators of the Hong Kong exchanges and their associated clearing houses.
Mr Fok says exchanges in Hong Kong are prepared for listings of companies with shares traded in renminbi.
"There are some mainland companies that want to list their equities and bonds in Hong Kong and we have therefore prepared and tested the systems to see if this can be handled," he said. "There are lots of companies that are interested in raising renminbi to invest or reinvest in mainland companies."
Mr Fok hopes to see a renminbi-denominated listing take place this year, adding that if local Hong Kong companies want to raise renminbi funds, they would have to show that they have operations on the mainland.
"This will be our next phase of growth, as Hong Kong will play a key role in the internationalisation of the currency."
Last year there were a total of 87 renminbi bond issues in Hong Kong with a total value of RMB105 billion (US$16.6 billion) _ three times the total of the year before. New initiatives from the central government to expand offshore renminbi business will add further impetus to this bond market. Total renminbi deposits in Hong Kong also doubled last year to 630 billion renminbi.
It was also a landmark year for renminbi trade settlement. After a slow start in 2009, total renminbi trade settlement handled by banks in Hong Kong exceeded RMB1.6 trillion last year. That represents 83% of renminbi trade settlement globally.
Hong Kong provides not only one-stop offshore renminbi services to customers in Hong Kong but also financial institutions all over the world, Chief Executive Donald Tsang said.
As for the possibility of competition with Shanghai, the hotbed for fundraising in China for Chinese companies, he said this was not an issue as the two cities were targeting different kinds of companies, and the rules and regulations in Hong Kong were trusted worldwide.
Mr Fok noted that of the 800-900 mainland companies listed outside China, only about 400 were listed in Hong Kong and the rest had chosen other markets, so there was an opportunity for the territory to attract many more listings.
The key attraction, in his view, is the application of the rules in Hong Kong's listing procedures, which gives the world trust in the financial reporting.
"We have some of the toughest rules in the world, especially when it comes to related-party transactions," he said.
The Hong Kong bourse as a result has become one of the world's leading exchanges with a market capitalisation of more than US$2.4 trillion. As well, the territory has been the world's op market for initial public offerings for the past three years as the boom in Chinese consumption has attracted global companies including Prada, Samsonite, L'Occitane and others to raise funds in Hong Kong.
The likelihood of the Chinese economy slowing down may have some impact on the capital markets but it likely would be limited, Mr Chan said.
"We do not see a hard landing in China," he said, noting that Beijing appeared to be dealing carefully with a tough external environment, notably the slowing of exports, while also gradually reining in the property sector.
He said Chinese authorities want qualitative growth rather than quantitative, with lower targets for the next five years than in the previous decade.
Beijing is also focusing more on raising the standard of living than purely on building infrastructure, which was the case in the past, and that means real wages of normal people are likely to continue to rise, said Mr Chan.
Hong Kong's economy was moving in line with global developments, he said, which meant that exports declined in the second half but this was partially offset by the rise in the service sector.
"Hong Kong going into 2012 is in good shape," he said. "This will be a year of uncertainties and we have been saying this for the past six months to prepare our people to brace for things to come." He said the SAR government was prepared for any eventualities, including extremes such as foreign funds and businesses starting to withdraw funds.
He said the government this week would announce new measures that may include some form of safety net for businesses, especially the small and medium-sized enterprises that make up the bulk of Hong Kong's economy.
In the wake of the 2008 financial crisis, he recalled, the territorial government provided a guarantee scheme that offered 80% protection to financial institutions on their losses if SME clients failed.
"This was a good deal and it helped save the economy. There will more measures this time around but we have to wait and see what they are," Mr Chan said without elaborating.
MONDAY, JANUARY 30,2012
Turning the Chinese renminbi into an international currency, with Hong Kong as the global hub for renminbi trade, is the latest step in the territory's drive to be a top financial centre."We want to expand the renminbi to the rest of the world," said K.C. Chan, the secretary for Financial Services and the Treasury for the Hong Kong SAR.
Mr Chan sees a big role for the renminbi in raising funds via debt instruments or through equity instruments. "If the renminbi is to be used as an international currency then it has to be used around the world and that's our aim to help make it happen," he said.
The greater the use of the renminbi, the greater the benefit to Hong Kong as a competitive international capital market destination. The Beijing government fully supports the idea, he added.
In fact, the use of renminbi in Hong Kong has been flourishing. At present there is an estimated 600 billion renminbi circulating in the territory _ and that figure excludes the bond market, according to Lawrence Fok, chief marketing officer of Hong Kong Exchange and Clearing Ltd (HKEx), the listed holding company of the operators of the Hong Kong exchanges and their associated clearing houses.
Mr Fok says exchanges in Hong Kong are prepared for listings of companies with shares traded in renminbi.
"There are some mainland companies that want to list their equities and bonds in Hong Kong and we have therefore prepared and tested the systems to see if this can be handled," he said. "There are lots of companies that are interested in raising renminbi to invest or reinvest in mainland companies."
Mr Fok hopes to see a renminbi-denominated listing take place this year, adding that if local Hong Kong companies want to raise renminbi funds, they would have to show that they have operations on the mainland.
"This will be our next phase of growth, as Hong Kong will play a key role in the internationalisation of the currency."
Last year there were a total of 87 renminbi bond issues in Hong Kong with a total value of RMB105 billion (US$16.6 billion) _ three times the total of the year before. New initiatives from the central government to expand offshore renminbi business will add further impetus to this bond market. Total renminbi deposits in Hong Kong also doubled last year to 630 billion renminbi.
It was also a landmark year for renminbi trade settlement. After a slow start in 2009, total renminbi trade settlement handled by banks in Hong Kong exceeded RMB1.6 trillion last year. That represents 83% of renminbi trade settlement globally.
Hong Kong provides not only one-stop offshore renminbi services to customers in Hong Kong but also financial institutions all over the world, Chief Executive Donald Tsang said.
As for the possibility of competition with Shanghai, the hotbed for fundraising in China for Chinese companies, he said this was not an issue as the two cities were targeting different kinds of companies, and the rules and regulations in Hong Kong were trusted worldwide.
Mr Fok noted that of the 800-900 mainland companies listed outside China, only about 400 were listed in Hong Kong and the rest had chosen other markets, so there was an opportunity for the territory to attract many more listings.
The key attraction, in his view, is the application of the rules in Hong Kong's listing procedures, which gives the world trust in the financial reporting.
"We have some of the toughest rules in the world, especially when it comes to related-party transactions," he said.
The Hong Kong bourse as a result has become one of the world's leading exchanges with a market capitalisation of more than US$2.4 trillion. As well, the territory has been the world's op market for initial public offerings for the past three years as the boom in Chinese consumption has attracted global companies including Prada, Samsonite, L'Occitane and others to raise funds in Hong Kong.
The likelihood of the Chinese economy slowing down may have some impact on the capital markets but it likely would be limited, Mr Chan said.
"We do not see a hard landing in China," he said, noting that Beijing appeared to be dealing carefully with a tough external environment, notably the slowing of exports, while also gradually reining in the property sector.
He said Chinese authorities want qualitative growth rather than quantitative, with lower targets for the next five years than in the previous decade.
Beijing is also focusing more on raising the standard of living than purely on building infrastructure, which was the case in the past, and that means real wages of normal people are likely to continue to rise, said Mr Chan.
Hong Kong's economy was moving in line with global developments, he said, which meant that exports declined in the second half but this was partially offset by the rise in the service sector.
"Hong Kong going into 2012 is in good shape," he said. "This will be a year of uncertainties and we have been saying this for the past six months to prepare our people to brace for things to come." He said the SAR government was prepared for any eventualities, including extremes such as foreign funds and businesses starting to withdraw funds.
He said the government this week would announce new measures that may include some form of safety net for businesses, especially the small and medium-sized enterprises that make up the bulk of Hong Kong's economy.
In the wake of the 2008 financial crisis, he recalled, the territorial government provided a guarantee scheme that offered 80% protection to financial institutions on their losses if SME clients failed.
"This was a good deal and it helped save the economy. There will more measures this time around but we have to wait and see what they are," Mr Chan said without elaborating.
Tsang confident in Asia's resilience
HONG KONG : However vibrant Asia may look, it still remains vulnerable to fallout from the global economy given the region's integration and dependence on exports to developed-world markets, warns Hong Kong Chief Executive Donald Tsang.
"Here in Asia, inflationary pressure is relatively light, governments have achieved generally balanced budgets, banking systems are stable and borrowing is inexpensive," he said in a recent address.
"These sound fundamentals provide a solid platform for growth and stability. But Asia is not out of the woods. We will closely monitor the developments in Europe and the US as these will inevitably affect on our region."
As the region enters the Year of the Dragon, he noted that such years are said to be auspicious for strong leadership and bold decision-making. However, the dragon is also an unpredictable creature with a quick temper.
Asia's dragon economies have entered 2012 in relatively good shape. These economies, with mainland China at their head, include Hong Kong, Singapore, South Korea, Taiwan and Vietnam.
The growing interconnectivity in the region has helped to sustain its growth even during the worst of times, said Mr Tsang, expressing optimism that growing regional exchanges are positive signs for sustainable growth through engagement, understanding and collaboration.
With the lingering euro zone debt crisis, concerns about the US recovery and political instability in parts of the Middle East and Africa, Asia is well placed to drive sustainable growth at least on two distinct levels, he said.
First, a sound economic environment in Asia can help to cushion the effect of downside risks in other parts of the world. Second, Asia can provide a springboard for sustainable global growth.
In the meantime, the region is seeking ways to reduce its exposure to turbulence in the global environment. One way to achieve this is to develop Asia's domestic markets, thus reducing heavy dependence on exports to the West while also nurturing new sources of growth.
"Mainland China's large and increasingly affluent population is becoming an important market, not only for our nation but also for our region. But to drive domestic demand, each individual economy requires its own policy mix," said Mr Tsang.
Hong Kong, he said, had developed a four-pronged strategy to keep things moving:
- Increased infrastructure investment, with several large-scale projects under way that will increase capacity for long-term growth at home and bolster domestic demand. "In other words, we are taking this opportunity to become more competitive." The territory's annual capital works spending has almost tripled over the past five years to an estimated HK$58 billion in the current fiscal year. It is expected to remain at record high levels in the next few years as projects reach their construction peaks.
- To achieve balanced, stable and sustainable economic growth, the government is promoting a more diversified business environment. This includes nurturing six new industries where Hong Kong has a clear advantage in the region. These include medical services, education services, innovation technology, testing and certification, creative and cultural industries as well as green industries. Their development will help to broaden Hong Kong's economic base and continue its transformation toward a knowledge-based economy.
- Attracting a wider variety of foreign companies to Hong Kong is also critical. With traditional Western markets in the doldrums, overseas businesses have been looking East for fresh ideas and opportunities, for fund-raising potential and for market development.
Mr Tsang noted that almost 7,000 overseas and Chinese mainland companies now have operations in Hong Kong. More than half have their regional headquarters and regional offices in the city.
- The fourth strategy involved enhancing Hong Kong's potential as a capital-raising platform for companies from every part of the world. Last year, the first companies from Italy, the US, Switzerland and Kazakhstan listed in Hong Kong. With total funds raised estimated at US$36 billion in 2011, Hong Kong was the world's largest IPO market for the third consecutive year.
Looking at the broader picture, Mr Tsang said Asia has become increasingly proactive in developing its domestic and overseas markets. The region has become more confident and adventurous in expanding its horizons and engaging with foreign markets more as partners than as competitors.
"Hong Kong is a small place with few natural resources. We have no choice but to reach out and develop new markets around the world," he said.
"Today, India is Hong Kong's fifth largest export market. Also, our merchandise exports to India and Russia have almost quadrupled over the past five years."
HONG KONG : However vibrant Asia may look, it still remains vulnerable to fallout from the global economy given the region's integration and dependence on exports to developed-world markets, warns Hong Kong Chief Executive Donald Tsang.
"Here in Asia, inflationary pressure is relatively light, governments have achieved generally balanced budgets, banking systems are stable and borrowing is inexpensive," he said in a recent address.
"These sound fundamentals provide a solid platform for growth and stability. But Asia is not out of the woods. We will closely monitor the developments in Europe and the US as these will inevitably affect on our region."
As the region enters the Year of the Dragon, he noted that such years are said to be auspicious for strong leadership and bold decision-making. However, the dragon is also an unpredictable creature with a quick temper.
Asia's dragon economies have entered 2012 in relatively good shape. These economies, with mainland China at their head, include Hong Kong, Singapore, South Korea, Taiwan and Vietnam.
The growing interconnectivity in the region has helped to sustain its growth even during the worst of times, said Mr Tsang, expressing optimism that growing regional exchanges are positive signs for sustainable growth through engagement, understanding and collaboration.
With the lingering euro zone debt crisis, concerns about the US recovery and political instability in parts of the Middle East and Africa, Asia is well placed to drive sustainable growth at least on two distinct levels, he said.
First, a sound economic environment in Asia can help to cushion the effect of downside risks in other parts of the world. Second, Asia can provide a springboard for sustainable global growth.
In the meantime, the region is seeking ways to reduce its exposure to turbulence in the global environment. One way to achieve this is to develop Asia's domestic markets, thus reducing heavy dependence on exports to the West while also nurturing new sources of growth.
"Mainland China's large and increasingly affluent population is becoming an important market, not only for our nation but also for our region. But to drive domestic demand, each individual economy requires its own policy mix," said Mr Tsang.
Hong Kong, he said, had developed a four-pronged strategy to keep things moving:
- Increased infrastructure investment, with several large-scale projects under way that will increase capacity for long-term growth at home and bolster domestic demand. "In other words, we are taking this opportunity to become more competitive." The territory's annual capital works spending has almost tripled over the past five years to an estimated HK$58 billion in the current fiscal year. It is expected to remain at record high levels in the next few years as projects reach their construction peaks.
- To achieve balanced, stable and sustainable economic growth, the government is promoting a more diversified business environment. This includes nurturing six new industries where Hong Kong has a clear advantage in the region. These include medical services, education services, innovation technology, testing and certification, creative and cultural industries as well as green industries. Their development will help to broaden Hong Kong's economic base and continue its transformation toward a knowledge-based economy.
- Attracting a wider variety of foreign companies to Hong Kong is also critical. With traditional Western markets in the doldrums, overseas businesses have been looking East for fresh ideas and opportunities, for fund-raising potential and for market development.
Mr Tsang noted that almost 7,000 overseas and Chinese mainland companies now have operations in Hong Kong. More than half have their regional headquarters and regional offices in the city.
- The fourth strategy involved enhancing Hong Kong's potential as a capital-raising platform for companies from every part of the world. Last year, the first companies from Italy, the US, Switzerland and Kazakhstan listed in Hong Kong. With total funds raised estimated at US$36 billion in 2011, Hong Kong was the world's largest IPO market for the third consecutive year.
Looking at the broader picture, Mr Tsang said Asia has become increasingly proactive in developing its domestic and overseas markets. The region has become more confident and adventurous in expanding its horizons and engaging with foreign markets more as partners than as competitors.
"Hong Kong is a small place with few natural resources. We have no choice but to reach out and develop new markets around the world," he said.
"Today, India is Hong Kong's fifth largest export market. Also, our merchandise exports to India and Russia have almost quadrupled over the past five years."
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