HK faces stiffer race as yuan trade centre

PUBLISHED : Thursday, 13 January, 2011, 12:00am
UPDATED : Thursday, 13 January, 2011, 12:00am

Hong Kong is facing more competition from rival cities in the race to become an offshore yuan trading centre as lenders in New York, London and Singapore begin offering services in the currency.

Bank of China started yuan trading services in the United States last month, a sign that Beijing is encouraging more major financial centres to use the currency. This comes before President Hu Jintao's visit to Washington on January 19.

According to BOC, its branches in New York and Los Angeles offer yuan savings and time deposits, remittance and exchange services. Corporate customers can also do yuan trade settlement.

Bank of East Asia plans to introduce yuan services in London soon, while Citi and HSBC Holdings are offering some yuan services in Japan, Singapore, the US and other parts of the world.

Banks in Hong Kong were allowed to conduct yuan business in 2004.

Since July last year, China has relaxed regulations to encourage more companies around the world to use the yuan to settle trade. The People's Bank of China also relaxed rules allowing yuan-denominated investment products, such as funds, bonds and insurance policies, to be launched in Hong Kong over the past few months. Hong Kong Exchanges and Clearing is preparing to introduce the first yuan initial public offering this year.

Undersecretary for Financial Services and the Treasury Julia Leung Fung-yee played down the impact on Hong Kong of other cities doing more yuan business.

'With the yuan being increasingly used for cross-border trades between the mainland and traders around the world, it is only natural that yuan is being traded everywhere in the world,' Leung said. 'Hong Kong has a first-mover advantage of having accumulated yuan liquidity through the trade settlement scheme. Our position as offshore yuan centre is not being affected.'

Carmen Ling, head of Hong Kong global transaction services at Citi, said the bank offered yuan-related services in the US but most of its yuan trade was done in Hong Kong.

'Many of our multinational clients like to conduct yuan trade settlement or other yuan services through the Hong Kong branch because the city is close to China and is in the same time zone. This is also because Hong Kong has a much higher liquid pool of yuan than other financial centres,' Ling said.

In November, Hong Kong had 280 billion yuan (HK$329.64 billion) in deposits, the largest yuan liquidity pool outside the mainland.

HSBC Hong Kong office head of business planning and strategy Thomas Poon said the bank offered individual yuan services in Hong Kong, Japan and Singapore and was planning to expand to other parts of the world. Yuan trade settlement services are offered in 35 countries.

'As the yuan becomes more international, it is natural to see other financial centres developing yuan business. But this does not mean they will steal the business from Hong Kong,'' Poon said. 'The pie is going to grow bigger and bigger and Hong Kong will benefit, too.'

Andrew Fung Hau-chung, a general manager and head of treasury and investment at Hang Seng Bank, said: 'Since Hong Kong is the only offshore clearing centre, all these trades in New York, Europe and Singapore are cleared in Hong Kong. As such, the more banks in overseas markets offer yuan services, the more it helps Hong Kong to increase the velocity of offshore yuan and hence further strengthen Hong Kong's offshore centre status.'