by Jon Vollemaere of R5
by Jon Vollemaere of R5

RedBack comes to a Royal House UK – China Renminbi Summit June 18th 2014 London

In June this year it was my great pleasure to attend the first UK-China Financial Forum as a guest of HM Treasury.

First Published: e-Forex Magazine 58 / Recent Events / October, 2014

First announced by the Chancellor during his visit to Hong Kong earlier this year, the UK China RMB Forum was dedicated to discussing the opportunities that China’s increasing economic and financial importance presents to both countries  - to generate jobs and growth, and in particular through the internationalisation of the renminbi (RMB) via the City of London itself.

Background

In the last three years, Renminbi has overtaken 23 other currencies to become the seventh most used currency in international payments. And that presents huge opportunities – both to China, who benefits from more foreign investment, greater access, and more international diversification – and probably more so to the UK and its current growth seeking government.

In 2011 there was almost no offshore Renminbi activity in London.

Now it accounts for two thirds of Renminbi trading outside China and Hong Kong. Two years ago we saw the first UK bank, HSBC, issuing an RMB bond.

Last year, we saw the first Chinese bank do the same – and this week the announcement that UK itself will become the first western country to issue a government bond denominated in RMB to add to Britain’s foreign currency reserves, which hitherto did not contain Chinese currency.

The Renminbi has overtaken 23 other currencies to become the seventh most used currency in international payments.

The Renminbi has overtaken 23 other currencies to become the seventh most used currency in international payments.

The meeting also saw the announcement of a series of measures designed to deepen economic and financial co-operation between Britain and China the more interesting including:

  Direct trading between the British and Chinese currencies for the first time. 

Effectively launching GBP/RMB trading without a dollar leg, which will likely encourage the development of a direct cross. The pound becomes the fifth major currency to trade directly against the Renminbi (RMB), after the US dollar, Japanese yen, Australian dollar and New Zealand dollar.  An important step in strengthening economic and financial ties between the UK and China by facilitating the formation of a bilateral exchange rate, lowering transaction costs and promoting the use of RMB and sterling in bilateral trade and investment.

  Granting further licenses to British firms to enable them to invest directly into Chinese markets. 

Blackrock and HSBC Global have been granted RMB Qualified Foreign Institutional Investors (RQFII) status by the China Securities Regulatory Commission (CSRC).

  Renminbi dominated loan guarantees by the government’s export credit agency, UK Export Finance (UKEF).

Which should help to support British exporters compete for and win new business in China and create a whole sway of RMB hedging products for UK based banks to sell to importers and exporters alike.

The Chancellor also made the announcement earlier in the day that China Construction Bank (CCB) had been appointed as the first official RMB clearing bank outside Asia, in London. An important step to reinforce the London attempt as the western hub for Chinese finance – which was alas upstaged by the clearing bank announcement for Germany at the recent ACI Berlin.

RedBack comes to a Royal House UK – China Renminbi Summit June 18th 2014 London

London

The latest data also shows that London now accounts for 57% of all RMB-denominated SWIFT payments between Europe and Mainland China and Hong Kong. Standard Chartered’s RMB Globalisation Index, which puts London as the most important offshore RMB centre after Hong Kong, concluding that payments through London are now comparable to levels seen earlier last year in Hong Kong.

Speakers said they expect the global share of RMB payments to grow to 30%, from the current level of 3%, and the RMB to be structurally ready for liberalisation by 2017 – a year earlier than previously hoped.

So it’s no wonder they rolled out the big guns.

The Forum was attended by all the senior British and Chinese decision and policy makers including the:

UK Chancellor, Premier Li,  Governor Zhou of the People’s Bank of China, 

Sir Charlie Bean, Deputy Governor of the Bank of England, and the Chairmen and Chief Executives of HSBC, China Construction Bank, DB, Bank of China, etc. The leader of 19% of the world’s population does not show up to any old event!

The Chancellor said: “Let me be clear. Our long term economic plan is working, but the job isn’t done. We need to export to fast growing economies like China, and attract more investment to our shores. To do that we need to make sure China’s currency, as it emerges onto the world stage, is used and traded here – as that will not only be good for China, but good for UK jobs and investment too.”

Personally - I believe in London, China is seen as an opportunity, whereas in New York, China is seen as the new bad guy, and in Europe, the financial transaction tax may well slow the growth of the EUR/RMB market. So, I think London will emerge as the main trading hub for both GBP/RMB and USD/RMB- there’s certainly heavy government support for it

Towards the end of the summit I could hear the banging of drums and the noise of a large crowd. I suspected that Chinese protesters and had found the venue - Lancaster House near the Palace. 

It was only then I realized – that no – the sound was merely the changing of the guard…