Asian Infrastructure Investment Bank

Hong Kong eyes bigger role in offshore yuan trade by joining Asian Infrastructure Bank

Joining the bank could bring opportunities for local businesses, boost city’s prominence in yuan-denominated fund-raising projects

PUBLISHED : Wednesday, 06 April, 2016, 8:15am
UPDATED : Thursday, 07 April, 2016, 10:25am

Hong Kong will take a bigger role in the internationalisation of yuan and multi-billion fund raising when the city becomes a member of the Beijing-led Asian Infrastructure Investment Bank this year, Secretary for Financial Services and the Treasury Chan Ka-keung said.

The AIIB is a Chinese initiative linked to its One Belt, One Road policy and aims to finance infrastructure projects from India to South East Asia and the Middle East. The 57-member multinational bank is seen as a rival to the US-led World Bank and despite opposition from Washington, many western countries such as Britain, Germany and Italy have joined.

Financial Secretary John Tsang Chun-wah has asked the Hong Kong Monetary Authority — the city’s central bank — to establish an office to arrange various types of funding for the AIIB, Chan told the South China Morning Post as Jin Liqun, president of the Asian Infrastructure Investment Bank, is going to have his speech in Hong Kong at a function organised by Hong Kong Association of Banks tonight

Chan said the amount of funds to be raised has not been confirmed. Analysts have said the AIIB will lend between US$10 billion to US$15 billion annually for the first years of its operations. The bank is expected to start up in the second half of 2016.

“This will be an important step for Hong Kong, allowing it to take a leading role as the international fund-raising centre for the many projects in the One Belt, One Road policy that need to be financed by the AIIB,” Chan said. “The financial sector, the professionals such as the lawyers and accountants, as well as traders or other companies will all benefit from these developments.”

Chan said Hong Kong had lobbied to join the AIIB and his undersecretary James Lau attended all relevant meetings over the past year to finalise the details.

“Hong Kong could never join in the first batch of members as it is not a country and so we always fought for joining as a sub-sovereign member,” he said.

At the Boao Forum for Asia last month, AIIB president Jin Liqun flagged Hong Kong’s sub-sovereign membership.

Chan said Hong Kong banks and its financial sector have the deep experience and knowledge that can be utilised to raise funds for AIIB via bond offerings or other type of products. It will also boost the international status of Hong Kong as a fund-raising centre.

In addition, many Hong Kong banks could offer project finance to individual companies within the One Belt, One Road policy.

He said even companies not involved in infrastructure projects could benefit from AIIB involvement.

“AIIB and One Belt, One Road is not just for infrastructure projects. It is also talking about developing business relationships,” Chan said. “Hong Kong firms can also participate in various business sectors in these countries.”

“It is also an important step forward for Hong Kong to act as a offshore yuan hub. Hong Kong can arrange many yuan-denominated fund-raising projects or develop other yuan products,” Chan said.

He said China’s 13 five-year plans have confirmed Hong Kong’s role as a hub for yuan business. There are worries over the Chinese currency’s potential devaluation and its deposits in Hong Kong have fallen during recent months. Dim sum bond offerings hit a record low in the first quarter.

Chan said the AIIB’s involvement in the city could change that.

“With the development of AIIB, there would be more trade settlement, fund raising or investment products to be conducted in yuan. This would strengthen Hong Kong’s role as an international hub of the offshore yuan trading centre,” Chan said.