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Following is the speech by the Financial Secretary, Mr John C Tsang, at the seminar "RMB Internationalisation - Opportunities in Paris and Hong Kong", co-organised by Paris EUROPLACE, the Hong Kong Trade Development Council and the Hong Kong Economic and Trade Office, Brussels, in Paris on November 21 (Paris time):
Minister Moscovici (Minister of Finance, Mr Pierre Moscovici), distinguished guests, ladies and gentlemen:
Bonjour.
I am delighted to join you all today.
Congratulations to Paris EUROPLACE, the Hong Kong Trade Development Council and the Hong Kong Economic and Trade Office in Brussels on organising this important event. I would also like to thank the distinguished speakers and panellists for sharing their experience and ideas with us today.
The Palais Brongniart is an ideal venue for this seminar. Not only is it a spectacular setting, it also used to be home to the Paris stock exchange in the early 19th century.
It is appropriate that we are here at the site of one of the world's first financial markets to discuss recent developments of China, the newest player in global finance, and its currency, the Renminbi.
As China's global financial centre, Hong Kong has been deeply involved in our nation's financial liberalisation, and we look forward to co-operating with our friends here in Paris to promote the wider use of the Renminbi in France and around the world.
Allow me to share with you a few of the key trends that make offshore Renminbi business such an exciting prospect for international finance. I shall also touch on some areas where we can work together to capture the new business opportunities as they arise.
Offshore Renminbi business is still in its early phase of development. The first offshore transactions using the Mainland currency date back less than a decade to 2004. That is when banks in Hong Kong began offering the first Renminbi banking services outside the Mainland, from deposits and remittances to credit cards and currency exchanges. Even then, there was not much excitement, nor was there much opportunity for offshore Renminbi trading.
It was only after the Mainland authorities started to liberalise the use of Renminbi for external transactions in 2009 that the pace of change began to quicken significantly.
Today, the trends are clear. More of China's international trade is being settled using Renminbi. Also, overseas companies are increasingly making their foreign direct investments in Mainland China using Renminbi.
Foreign companies, including McDonald's, Caterpillar and Renault, have been quick to seize this opportunity to raise Renminbi capital in Hong Kong where rates have remained attractive to date, to finance their operations in Mainland China.
We are witnessing the beginning of a new era for international finance.
In 2012, around 10 per cent of the world's trade and current account transactions with China, valued at some 3 trillion Renminbi, were denominated and settled in the Chinese currency.
During the first nine months of this year, this ratio has already increased further to 13 per cent, compared to just two per cent three years ago. According to surveys conducted by banks, the use of Renminbi can help corporations improve their access to the Chinese market, and achieve better pricing through the reduction of exchange and transaction costs.
For companies that are setting up or expanding their business presence in Mainland China, it can be more efficient to use Renminbi instead of a third currency, or even their own currency. So far this year, about 17 per cent of the foreign direct investment into China has been made in Renminbi, compared to five per cent in 2011.
There is great potential for further growth when you consider that China is a US$8 trillion economy, with external trade flows of nearly US$4 trillion, or about RMB 24 trillion.
Importantly, the source of demand for financial products and services denominated in Renminbi is expanding significantly.
As the internationalisation of the Renminbi gathers pace, we shall see more overseas financial transactions denominated in the Mainland currency and supported by the ongoing development of the offshore Renminbi market.
In just the past three years, the market for offshore Renminbi business has increased manyfold:
* The value of Renminbi deposits in Hong Kong has increased by more than eight times to the current level of RMB900 billion;
* There has also been an eightfold increase in Renminbi trade settlement transactions handled by banks in Hong Kong, reaching RMB2.6 trillion in 2012 and a similar figure in just the first nine months of 2013;
* We have seen a ninefold increase in the outstanding size of the offshore Renminbi bond market to nearly RMB 300 billion; and
* Daily turnover of our RMB Real Time Gross Settlement system has increased 70 times to over RMB 400 billion.
This is a snapshot of the Renminbi trends from the Hong Kong viewpoint. Most important of all, the offshore Renminbi market participants include corporate and financial institutions, not just from Hong Kong, but from around the world. From a broader perspective, the Renminbi is now the ninth most actively traded currency in the foreign exchange market, up from 17th just three years ago. That is according to the most recent Bank for International Settlements Triennial Survey. It has also risen to the 12th position in the world in terms of the currency's use for international payments, according to SWIFT.
The challenge now for Hong Kong is twofold. On the one hand, we work with the Central Government to provide an effective testing ground for new offshore Renminbi products and initiatives. On the other hand, we are collaborating with other major financial centres, including Paris, to grow the Renminbi pie even bigger.
We also encourage the public and private sectors to work together to expand the range and quantity of Renminbi business.
In Hong Kong, we have put in place a sophisticated Renminbi infrastructure to cater for different types of transactions. This includes the necessary "hardware", such as the RMB Real Time Gross Settlement system, and the required "soft" infrastructure.
The industry has been developing market benchmarks for Renminbi. In June this year, the Treasury Markets Association launched the CNH Hong Kong Interbank Offered Rate fixing, or CNH Hibor fixing. This provides a benchmark for loan facilities. It also facilitates the development of Renminbi interest rate products.
Another area is to expand the flows of Renminbi between the onshore market in Mainland China and the offshore market elsewhere. While this is largely dependent on the Central Government's liberalisation policies, the private sector can play a part too, using Renminbi more actively for trade settlement and direct investment transactions with partners in China.
The participation of corporations is crucial for flows of Renminbi. After all, money doesn't flow by itself. It needs to be backed by real economic activity. It is important that banks and financial institutions continue their efforts to help customers conduct business with China using Renminbi.
Hong Kong has had a head start in developing Renminbi business, but that doesn't mean that the international use of Renminbi is confined to Hong Kong. Far from it. With more foreign companies experimenting with Renminbi transactions, it is only natural that banks and financial institutions in different parts of the world should provide Renminbi services to meet customer demand. This is not a diversion of business, it is an expansion of business, and we welcome this trend. It helps create a deeper and more liquid offshore Renminbi market, ultimately benefiting all players.
Minister Moscovici and I share the view that closer collaboration between Paris and Hong Kong on the development of Renminbi business should be promoted at every turn. This will enable corporates and financial institutions in both markets to capture the opportunities arising from the wider use of RMB to a fuller extent. Today's joint seminar is an encouraging step towards closer collaboration, and I look forward to further dialogue and promotion activities among industry representatives in Hong Kong and Paris.
Ladies and gentlemen, China is an important growth market for French businesses. French exports to China reached EUR18 billion in 2012, and they have been growing at an average annual rate of 16 per cent since the year 2000.
At the same time, Hong Kong is the premier international gateway for trade and investment into and out of Mainland China. Around 30 per cent of the trade flows and 50 to 60 per cent of China's direct investment flows are routed through Hong Kong.
Hong Kong and Paris are well-placed to co-operate in facilitating these trade and investment activities which are increasingly conducted using Renminbi.
Ladies and gentlemen, I have just highlighted some of the rapid developments in the internationalisation of the Renminbi within just a few short years. I am sure that you will consider the potential for further developments in the next few years and beyond. I thank you all for your ideas on how Hong Kong and Paris can co-operate even more closely to gain maximum benefit from this new and exciting trend in global finance. We are interested in building even more opportunities for the better creation of wealth in our two markets.
Thank you very much.
Ends/Friday, November 22, 2013
Issued at HKT 19:10
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