Hong Kong's development as an offshore renminbi center has been achieved in tandem with the introduction of new measures by the central government, in a three stage enhancement.

Secretary for Financial Services and the Treasury KC Chan, in his address to the Lujiazui Forum in Shanghai, in June this year, said that at first, Hong Kong developed as a banking center offering traditional renminbi banking services, then as a fund-raising and settlement center, and finally as an international center for offshore financial products.

Hong Kong became the first offshore location to offer renminbi banking services in 2004, when banks were allowed to offer account deposits, currency exchange, remittance services and card services.

It began the process of offshore accumulation of renminbi. Today the aggregate amount of deposits and certificates of deposit in Hong Kong are growing rapidly. Between April 2012 and April 2013 alone, renminbi deposits rose 24 percent.

The accumulated 837 billion yuan ($136.8 billion), is the largest offshore pool of renminbi liquidity in the world. The continued growth of renminbi liquidity in Hong Kong and elsewhere is the fundamental driving force behind further offshore market innovation.

'Dim sum' bonds a hit

During the second phase of development, which commenced in 2007, Hong Kong consolidated its function as a renminbi fund-raising and trade settlement center. The first offshore renminbi bonds, dubbed "dim sum" bonds, were issued that year.

By the end of May 2013, 276 outstanding "dim sum" bonds amounted to 278 billion yuan.

Another highlight was the renminbi cross-border trade settlement pilot scheme launched in 2009. It was extended nationwide throughout the mainland in 2011. The scheme allowed mainland trading companies to minimize foreign-exchange costs and exchange-rate risks. It also put in place a mechanism for cross-border bilateral flow of the currency.

During the first four months of 2013, trades worth 1.11 trillion yuan were settled by banks in Hong Kong, representing growth of 48 percent from the same period last year.

Global participation

Hong Kong is now in the third stage of development, with the focus having moved to product innovation and international co-operation. Since 2010, a great variety of products have been introduced, including funds investing in offshore bonds, real-estate investment trusts, gold and bond exchange-traded funds, currency futures, company shares and listed warrants, all denominated in renminbi.

In 2011, a new channel for offshore renminbi to circulate back onshore was introduced in the form of the Renminbi Qualified Foreign Institutional Investors scheme, or RQFII in short. The investment quota has since been increased to 270 billion yuan, and listed and unlisted funds investing in onshore bonds and stock markets have proliferated under the scheme.

The regulations were further relaxed in March this year, and the first RQFII qualification was granted to a Hong Kong-funded financial institution earlier this month.

(HK Edition 10/11/2013 page6)