London may lag Singapore in terms of renminbi payment volumes and deposits, but panellists and delegates at a forum in Hong Kong argued it has the potential to become a major trading offshore hub for the currency.
Singapore overtook London in terms of RMB payment volumes in March, according to the most recent figures from financial messaging provider Swift. Singapore accounts for 6.8% of the total amount and London 5.9%, as of March; they stand second and third globally behind Hong Kong, which accounts for 72.4%.
Moreover, the relatively shallow offshore RMB deposit pool in London compared with Hong Kong, Singapore and Taiwan has raised a question on whether capital city can develop into an offshore RMB centre. London had an estimated Rmb14.5 billion in June 2013, while Hong Kong’s stood at Rmb960 billion in April this year, Taiwan’s at Rmb274 billion and Singapore’s at Rmb200 billion.
Yet this will not prevent London from becoming one of the world’s biggest offshore RMB hubs, said speakers at the Greater China forum hosted by the London Stock Exchange in association with AsianInvestor this week.
Of course, the development model for London might differ from that of Hong Kong, noted Wang Huabin, chief corporate banking officer at Bank of China (UK). The Chinese territory began with RMB deposits and liquidity and then other functions emerged, while London is first and foremost a trading centre and thus may accumulate offshore RMB deposits to support that development, he said.
The audience seemed to agree. A poll of delegates found 34% felt the most important driver for London as an RMB hub would be the depth of capital markets for raising RMB. The next two most important drivers – each with 26% of the audience vote – were seen as the city’s ‘volume of settlement for important and export’ and ‘role of global FX trading hub’. Only 13% of respondents said the amount of RMB deposits was important.
Delegates said they thought London will be the second largest city in terms of offshore RMB importance in 2020, just behind Hong Kong, with Shanghai’s free trade zone and Singapore ranked third and forth.
BoC’s Wang took a somewhat different view on the latter question. Whether Shanghai can become an important offshore RMB centre will depend on whether China fully opens its capital account, he said. If it does, Hong Kong and Shanghai will be in the same position, and London will lag behind, especially in terms of trading, added Wang.
Either way, the different centres will have different functions, suggested Patrick Wong, head of China sales and business development for global banking markets at HSBC Securities. Hong Kong will act as the testing ground for new policies, he added, while London will act as the gate to Western markets.
Meanwhile, Wong said fund managers should be thinking about new product offerings – such as money market funds – under the renminbi qualified foreign institutional investor (RQFII) scheme.
London was handed a quota of Rmb80 billion in October under the RQFII scheme, which allows the investment of offshore RMB into Chinese onshore securities.