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Hong Kong can compete in global yuan trade, FSDC member Qin Xiao says

FSDC member Qin Xiao says as long as reforms are implemented, the city has no reason to fear competition from rivals Singapore and London

PUBLISHED : Wednesday, 04 December, 2013, 5:27am
UPDATED : Wednesday, 04 December, 2013, 5:27am

Despite facing keen competitive pressure from rival cities for offshore yuan business, a member of a top government advisory body says Hong Kong can still capture huge opportunities as long as it implements reform.

Qin Xiao, a former chairman of China Merchants Group who sits on the government-appointed Financial Services Development Council, said Hong Kong need not worry too much about the likes of Singapore, London and other cities which are competing for the increasingly lucrative yuan business.

"The US dollar is widely traded in many international cities. Hong Kong, London and many other cities can also have very active US dollar trading," Qin said at a media briefing yesterday.

The yuan is not yet fully convertible but China since 2009 has allowed the currency to be used around the world for trade and investment purposes. Initially, most trading was done through Hong Kong but these exclusive rights ended after China last year allowed other financial centres such as London, Singapore and Sydney to do similar offshore yuan business.

"Hong Kong's proportion of yuan business worldwide may decrease in the coming years as a result of other markets also doing it," Qin said.

"However, when more international financial centres are trading the currency, the yuan pie will get bigger and Hong Kong will also get a higher business volume in yuan."

Qin said Hong Kong had to keep on reforming its own market infrastructure to capture yuan business. "Competition is not a bad thing as it encourages us all to do a better job and provide a better service," he said.

The FSDC last month submitted 21 proposals to the government to further develop the city's yuan business. This included a proposed third qualified domestic institutional investor scheme worth a combined HK$100 billion to allow banks, brokers and insurers in Qianhai - the special economic zone in Shenzhen - to invest directly in Hong Kong stocks, bonds and yuan investment products.

Other proposals include further relaxing cross-border yuan lending and allowing state-owned enterprises and China Investment Corp to invest in yuan products in Hong Kong.

Qin said for Hong Kong to have an active yuan business, Beijing would need to remove the 20,000 yuan daily exchange cap in the city. He believes the market conditions are right for Beijing to remove the restriction.

He believes the yuan will continue to rise next year, and other yuan products would also be popular.

"For the yuan business to continue to grow in Hong Kong, we need to have more products and more interaction between Hong Kong and mainland financial markets," he said.

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'In his first term in office, US President Barack Obama suggested the creation of an infrastructure bank ...'
Read more at ****www.project-syndicate.org/commentary/kenneth-rogoff-asks-whether-we-need-to-know-what-s-ailing-the-advanced-economies-in-order-to-boost-growth#foP5BzoMPOrTUE8l.99
Even Kenneth Rogoff, one of the authors of 'This Time is Different: Eight Centuries of Financial Folly', agrees with Lawrence Summers that infrastructure investment is needed in the United States, right now, to stimulate demand and kickstart recovery.
Now, it seems the United States needs an infrastructure bank more than Asia needs one!
You can also read my previous reader's comments at 'Hong Kong dollar should link to basket, says Stiglitz'.
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The Chinese readers can also visit ****cn.wsj.com/big5/20131204/frx091431.asp?source=whatnews2.
Changing the Renminbi is like turning around an aircraft carrier. It takes a few decades to finish doing the job.
The English readers can visit ****blogs.wsj.com/chinarealtime/2010/10/29/questioning-the-yuans-rise-to-global-status/. (Questioning the Yuan’s Rise to Global Status)
China needs to have a deficit current account year in and year out.
A government budget deficit year in and year out, and hence a deep and well developed treasury bill and government bond market (with a genuine (higher) market-determined yield curve) for the domestic pension funds and foreign reserve currency managers to invest in. Success breeds success and they mutually reinforce each other.
A well established derivative market for risk hedging.
Bankruptcy laws, ...
All these take time to do well.
It's like learning to fly a helicopter, not driving a bicycle. Once up in the sky, no mistakes can be made.
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"The US dollar is widely traded in many international cities. Hong Kong, London and many other cities can also have very active US dollar trading," Qin said...
Perhaps, in next year's APEC Summit, China and Hong Kong should consider setting up the infrastructure bank proposed by President Xi Jinping. You can revise the article 'Hong Kong should grab chance to host Asian infrastructure bank, says top banker'.
Despite all the hypes going on, the Chinese readers should also visit ****money18.on.cc/econ/econ_comment_content.html?type=2&cat=econ&aid=20131204010911_0000&subsect=comment&adate=20131204, and face the hard facts of life.

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