Hong Kong’s status as yuan hub under threat
2015-08-19 20:31:18.905 GMT
By Jeanny Yu jeanny.yu@scmp.com
Aug. 20 (South China Morning Post) -- Hong Kong’s status
as the world’s foremost yuan hub could be threatened in two
years as trade in the currency moves to the mainland, HSBC says.
If the yuan achieved full convertibility by 2017, Hong
Kong would face new challenges to retain the top spot as
settlement in the city would drop significantly, according to
the bank.
“Hong Kong will maintain its leading position until
2017, by which time the yuan is expected to be fully
convertible. After that, subject to China’s capital account
liberalisation, mainland China will see more yuan settlement
taking place there. At that point, there would be a material
impact on Hong Kong as a settlement centre,” said Vina Zhang,
global head of yuan internationalisation, payment and cash
management, commercial banking, at HSBC.
In 2004, Hong Kong was the first to launch offshore yuan
business and has since been the global hub for yuan trade
settlement, financing and asset management.
Last year, a combined 6.6 trillion yuan of the
mainland’s external trade was settled in yuan, of which 6.3
trillion yuan was handled by Hong Kong banks, according to the
Hong Kong Monetary Authority.
But significant changes in the yuan settlement
infrastructure are already under way. Phase one of the China
International Payment System (CIPS), a worldwide payment
superhighway for the yuan, which allows offshore companies to
directly settle yuan with onshore counter parties, will be
launched by the end of this year. That would facilitate
companies on the mainland to directly settle trades at home.
Meanwhile, the narrowing gap between onshore and offshore
yuan rates is discouraging mainland companies from coming to
Hong Kong to settle trade as offshore yuan is no longer cheaper.
China, because of its capital controls, is the only nation
with different onshore and offshore currency rates, a
discrepancy that has benefited Hong Kong as the gateway to the
mainland. But the gap between onshore and offshore yuan rates
is shrinking.
Hong Kong’s yuan pool could shrink from June’s 992.9
billion yuan as ordinary investors and companies alike switched
their holdings into other currencies while foreign investors
relocated to US dollar-denominated assets, said Zhang.
But Zhang added that yuan settlement volumes were not
expected to fall in Hong Kong in the short term, and that she
found worries about companies abandoning the yuan following
last week’s devaluation exaggerated.
The yuan, according to HSBC, is on a steady track to
become the world’s third-biggest payment currency as early as
this year, with 30 per cent of China’s cross-border trade to
be settled in yuan, from the current 22 per cent.
Copyright © South China Morning Post Publishers Ltd. All
rights reserved.
Reprinted with permission from South China Morning Post
Publishers Ltd. Any redistribution of this information without
prior written approval is strictly prohibited.
For reprint permission, please contact us at +852 2680 8180 or
reprint@scmp.com.
-0- Aug/19/2015 20:31 GMT
2015-08-19 20:31:18.905 GMT
By Jeanny Yu jeanny.yu@scmp.com
Aug. 20 (South China Morning Post) -- Hong Kong’s status
as the world’s foremost yuan hub could be threatened in two
years as trade in the currency moves to the mainland, HSBC says.
If the yuan achieved full convertibility by 2017, Hong
Kong would face new challenges to retain the top spot as
settlement in the city would drop significantly, according to
the bank.
“Hong Kong will maintain its leading position until
2017, by which time the yuan is expected to be fully
convertible. After that, subject to China’s capital account
liberalisation, mainland China will see more yuan settlement
taking place there. At that point, there would be a material
impact on Hong Kong as a settlement centre,” said Vina Zhang,
global head of yuan internationalisation, payment and cash
management, commercial banking, at HSBC.
In 2004, Hong Kong was the first to launch offshore yuan
business and has since been the global hub for yuan trade
settlement, financing and asset management.
Last year, a combined 6.6 trillion yuan of the
mainland’s external trade was settled in yuan, of which 6.3
trillion yuan was handled by Hong Kong banks, according to the
Hong Kong Monetary Authority.
But significant changes in the yuan settlement
infrastructure are already under way. Phase one of the China
International Payment System (CIPS), a worldwide payment
superhighway for the yuan, which allows offshore companies to
directly settle yuan with onshore counter parties, will be
launched by the end of this year. That would facilitate
companies on the mainland to directly settle trades at home.
Meanwhile, the narrowing gap between onshore and offshore
yuan rates is discouraging mainland companies from coming to
Hong Kong to settle trade as offshore yuan is no longer cheaper.
China, because of its capital controls, is the only nation
with different onshore and offshore currency rates, a
discrepancy that has benefited Hong Kong as the gateway to the
mainland. But the gap between onshore and offshore yuan rates
is shrinking.
Hong Kong’s yuan pool could shrink from June’s 992.9
billion yuan as ordinary investors and companies alike switched
their holdings into other currencies while foreign investors
relocated to US dollar-denominated assets, said Zhang.
But Zhang added that yuan settlement volumes were not
expected to fall in Hong Kong in the short term, and that she
found worries about companies abandoning the yuan following
last week’s devaluation exaggerated.
The yuan, according to HSBC, is on a steady track to
become the world’s third-biggest payment currency as early as
this year, with 30 per cent of China’s cross-border trade to
be settled in yuan, from the current 22 per cent.
Copyright © South China Morning Post Publishers Ltd. All
rights reserved.
Reprinted with permission from South China Morning Post
Publishers Ltd. Any redistribution of this information without
prior written approval is strictly prohibited.
For reprint permission, please contact us at +852 2680 8180 or
reprint@scmp.com.
-0- Aug/19/2015 20:31 GMT