Offshore RMB

Express Issue 62 ‧

April 2019

Contents

Part 3

Part 4

Part 1

Special Topic

Chart Book

Market Review

Part 2 Policy and Peers Updates 4

５

1

Editors：

Annie Cheung

Tel ：+852 2826 6192

Email : anniecheung@bochk.com

Matthew Leung

Tel：+852 3982 7177

Email: matthewleung@bochk.com

Sharon Tsang

Tel ：+852 2826 6763

Email: sharontsang@bochk.com

10

Market Review

Offshore RMB Express 1

I. RMB exchange rate depreciated

slightly against USD

RMB briefly reached an eight-month

high in March, followed by depreciation

against USD due to increasing market

demand for USD. On March 29, the RMB’s

central parity rate against the USD closed at

6.7335, down by 0.6% from last month. CNH

closed at 6.7231, down by 0.3% MoM.

Meanwhile CNY closed at 6.7121, down by

0.3% MoM.

The Federal Reserve decided on March

21 to hold interest rates steady and expected

no more hikes in 2019. The Fed pointed to a

more dovish stance than market expected in

the statement accompanying its decision.

Fears over an inverted yield curve also

raised uncertainty of US Dollar Index. RMB

exchange rate against the USD is expected

to experience two-way fluctuation in the near

term as Sino-US trade negotiations continue

in April.

In terms of CNH HIBOR, the liquidity of

CNH remained stable in March. On March 29,

the O/N, 1-week and 3-month CNH HIBOR

rates were 1.90%, 2.57% and 3.12%,

respectively.

II. Major RMB indicators remained

stable

By the end of February 2019, RMB

deposits in Hong Kong amounted to RMB

608.3 billion, up by 1.5% MoM and 10.5%

YoY. Meanwhile, RMB loans outstanding in

Major RMB business indicators in the offshore market remained stable in March. RMB

exchange rate depreciated against the USD slightly. Since the beginning of 2019, total trading

volume of Bond Connect has more than doubled compared to the same period last year. RMB

assets holdings by overseas central banks continued to rise. RMB-denominated bonds were

officially included into the Bloomberg Barclays Global Aggregated Index effective April 1. This

encourages investors to increase their allocation in RMB assets and is another important

achievement of China’s financial opening up.

Offshore RMB Market Grows

Steadily

Market Review

Offshore RMB Express 2

Hong Kong were RMB 107.0 billion, up by

2.5% MoM and down by 25.6% YoY. The

total remittance of RMB for cross-border

trade settlement was RMB 338.6 billion in

February, down by 17.0% MoM, and up by

12.3% YoY. RTGS turnover was RMB 20.9

trillion in March 2019, up by 16.5% MoM. As

of March, 2019, the issuance amounted to

RMB 25.6 billion.

III. Total trading volume of Bond

Connect more than doubled

Staring from April 2019, 356 RMB-

denominated government and policy bank

bonds would be officially included into the

Bloomberg Barclays Global Aggregated

Index over a 20-month period. Upon

completion, the market value of RMB-

denominated bonds will become the fourth

largest currency component in the index,

following USD, EUR and JPY, and is

estimated to represent 6.06% of the

Bloomberg Barclays Global Aggregated

Index. Pan Gongsheng, Deputy Governor of

the People’s Bank of China, believes that the

decision made by Bloomberg demonstrates

global investors’ increasing demand for

China’s bonds and their confidence in

China’s economy. This encourages investors

to increase their allocation in RMB assets

and is another important achievement of

China’s financial opening up.

In February 2019, foreign investors’

RMB bond holdings amounted to RMB 1.75

trillion, down by RMB 2.5 billion compared to

last month and up by 37.3% YoY. Total

trading volume of Bond Connect in the first

quarter of 2019 reached RMB 341.8 billion,

more than doubled from last year (RMB

162.6 billion). Monthly total trading volume of

Bond Connect reached RMB 112.4 billion in

21 trading days in March 2019. Average daily

turnover surged to RMB 5.35 billion. Global

investors’ monthly net purchase of Chinese

bonds through Bond Connect amounted to

RMB 22.0 billion. At present, the investor

community of Bond Connect has grown to

711, spanning 25 jurisdictions.

IV. RMB holdings by overseas central

banks continued to rise

According to IMF statistics on March 31,

as of the fourth quarter of 2018, RMB assets’

share of the official foreign reserves of

central banks rose to 1.89% (USD 202.79

billion), higher than the share of 1.80% in the

third quarter and a record high since IMF

started reporting RMB reserve assets in

October 2016. The increasing RMB

allocation in central banks’ official reserves

shows that interests in RMB assets continue

to rise.

Market Review

Offshore RMB Express 3

In February 2019, SWIFT showed that

the RMB retained its position as the fifth

most active currency for domestic and

international payments by value, with a share

of 1.85% (2.15% in January 2019). Affected

by the seasonal effect of the Chinese New

Year, RMB payments value decreased by

26.5% compared to January 2019, while in

general all payments currencies decreased

by 14.3%.

V. Steady progress of opening up in

domestic capital markets

According to statistics from the State

Administration of Foreign Exchange (SAFE),

by the end of March 2019, the approved

quota for RMB Qualified Foreign Institutional

Investor (RQFII) was RMB 661.0 billion, up

by RMB 0.5 billion from previous month;

while the approved quota for Qualified

Foreign Institutional Investors (QFII)

increased by USD 0.2 billion to USD 101.6

billion. The approved quota for Qualified

Domestic Institutional Investors (QDII)

totaled USD 103.2 billion, with a total of 152

qualified domestic institutional investors,

same as previous month.

Policy and Peers Updates

Offshore RMB Express 4

BOCHK launched attestation service for

Mainland personal account opening With the development of the Greater Bay Area and fulfilling the demand for financial

services among Hong Kong residents in the Mainland, Bank of China (Hong Kong)

(“BOCHK”) announced on March 20 that it has been authorized to launch attestation

service for Mainland personal account opening in Hong Kong.

In order to open an account, Hong Kong residents only need to visit any BOCHK

branch with their permanent HKID card and Mainland Travel Permit for Hong Kong and

Macao Residents, and fill in account opening documents. Neither Mainland addresses

nor visits to the Mainland are required for the application. While the account can be linked

to Mainland mobile payment applications, there is transaction limit to ensure greater

security amid fulfilling customer’s spending needs in the Mainland.

PBOC is set to roll out 5 financial opening up measures by year-end

On March 24, Governor of the People’s Bank of China (“PBOC”) Yi Gang said that

the PBOC will introduce five measures to further open up financial markets by the end of

this year: 1) Encourage foreign investors into trust, financial leasing, auto finance,

currency brokerage and consumer finance sectors; 2) There will be no foreign ownership

limits for investment in financial asset investment companies and wealth management

companies set up by commercial banks; 3) Substantially expand the business scopes of

foreign banks; 4) Lift restrictions on business scopes of securities joint venture, and treat

them equally as domestic companies; 5) Remove requirement for foreign insurance

companies to have representative offices in China for 2 years before setting up

institutions.

Special Topics

Offshore RMB Express ５

Chapter ten of the “Outline Development Plan for the Guangdong-Hong Kong-Macao

Greater Bay Area” is “Jointly Developing Guangdong-Hong Kong-Macao Cooperation

Platforms”. It proposes to expedite the development of major platforms such as Qianhai of

Shenzhen, Nansha of Guangzhou and Hengqin of Zhuhai, expand the development potential of

Hong Kong and Macao, promote collaboration in public services, and spearhead

comprehensive cooperation among Guangdong, Hong Kong and Macao. The Outline

Development Plan highlights the function of Qianhai, Nansha and Hengqin as important

platforms in the development of the Greater Bay Area, encouraging Hong Kong and Macao to

proactively participate and capture business opportunities.

Jian YING, Senior Economist

I. The Outline Development Plan

raises the bar

The Outline Development Plan was

officially announced in February this year.

One of the strategic positioning of the

Greater Bay Area is to become a showcase

for in-depth cooperation between the

Mainland, Hong Kong and Macao -- relying

on the good foundation for cooperation

among Guangdong, Hong Kong and Macao,

fully leveraging the functions of the key

cooperation platforms in Qianhai of

Shenzhen, Nansha of Guangzhou and

Hengqin of Zhuhai, exploring new modes of

coordinated and synergistic development,

and deepening pragmatic cooperation

between the nine Pearl River Delta

municipalities, Hong Kong and Macao. The

Outline Development Plan specifies

development path for the three platforms:

Enhancing the functions of the

Shenzhen-Hong Kong modern service

industry cooperation zone in Qianhai

of Shenzhen

There are several key tasks in financial

sector. The first task would expand the

functions of offshore accounts (OSA) and

proactively explore effective paths to

Expanding Hong Kong’s

Development Potential via Proactive

Collaboration with Qianhai, Nansha

and Hengqin

Special Topic

Offshore RMB Express ６

capital account convertibility with reference

to the system of free trade accounts (FTA) in

the Shanghai Free Trade Zone. The second

task would support the Qianhai Mercantile

Exchange of the Hong Kong Exchanges and

Clearing Limited in establishing a spot

commodities trading platform for serving

domestic and foreign clients. The third task

would enhance cooperation in green finance

and FinTech between Shenzhen and Hong

Kong. Key tasks in other areas include

building a network service platform for cross-

border economic and trade cooperation,

developing a new type of international trade

center to facilitate offshore trading, as well as

high-end international maritime service

center, etc.

Developing Nansha of Guangzhou into

a showcase for comprehensive

cooperation between Guangdong,

Hong Kong and Macao

The Outline Development Plan supports

Nansha of Guangzhou to collaborate with

Hong Kong and Macao in developing an

integrated service base and an international

exchange platform for Chinese enterprises

going global, and develop as an important

window for opening up in southern China. In

terms of innovative development, Nansha

would plan to develop an industry

cooperation zone for in-depth collaboration

between Guangdong and Hong Kong and

explore the establishment of an industrial

park for Lusophone countries under

cooperation between Guangdong and Macao.

Meanwhile, Nansha would spend great

efforts in developing specialized financial

services such as shipping finance, FinTech,

aircraft and ship leasing. Moreover, Nansha

would explore the establishment of Greater

Bay Area International Commercial Bank in

the Guangdong Pilot Free Trade Zone, as

well as an account management system that

is conducive to the development of the

Greater Bay Area in order to facilitate cross-

border trade, investment and financing

settlement.

Showcasing Hengqin of Zhuhai for in-

depth cooperation between

Guangdong, Hong Kong and Macao

The Outline Development Plan proposes

to develop Guangdong-Hong Kong-Macao

Logistics Park, expedite the development of

major cooperation projects including the

Macao-Hengqin Youth Entrepreneurship

Valley and the Guangdong-Macao

Cooperation Industrial Park, and study the

development of a Guangdong-Macao

information hub. The Outline Development

Plan also supports joint development of

Chinese Medicine Science and Technology

Industrial Park by Guangdong and Macao.

Special Topic

Offshore RMB Express ７

II. Expanding business

development potential for Hong Kong

With the publication of the Outline

Development Plan, Guangdong, Hong Kong

and Macao will accelerate the establishment

of a world-class Bay Area, science and

technology innovation center, as well as

industrial cluster. Supportive policies and

business opportunities are likely to first

emerge in Qianhai, Nansha and Hengqin.

Major business opportunities in the financial

sector include:

1. Opportunities for cross-border

RMB business: The Outline Development

Plan proposes to progressively expand the

scale and scope of cross-border RMB usage

in the Greater Bay Area, allowing RMB

interbank lending, RMB foreign exchange

spot and forward businesses, derivative

trading and cross distribution of wealth

management products in accordance with

relevant regulations. The Outline

Development Plan also proposes to steadily

expand the channels for Mainland and Hong

Kong residents to invest in financial products

in each other’s markets, promote cross-

border sales of funds in the Greater Bay

Area in an orderly manner, and establish a

mechanism for mutual access of funds,

products, etc. In view of macro-prudential

and risk management, it will be ideal to

authorize financial institutions to carry out a

portion of pilot businesses in Qianhai,

Nansha and Hengqin in the near term. These

businesses will be easier to promote and

replicate across the entire Greater Bay Area

with solid fundamentals.

2. Opportunities for livelihood finance:

One of the basic principles of the Outline

Development Plan is to share the benefits of

development and improve people’s livelihood,

enabling all residents in the region to benefit

from the Greater Bay Area development. For

example, the Outline Development Plan

proposes to introduce high-end education

and medical resources, complement public

services and social management with Hong

Kong and Macao, and develop integrated

livelihood project covering senior care,

housing, education, medical care, etc. As a

result, innovative opportunities for livelihood

finance, such as pension funds, pension

loans, cross-border payment, silver bonds,

health insurance, etc. will emerge in Qianhai,

Nansha and Hengqin.

Special Topic

Offshore RMB Express ８

3. Opportunities for FinTech: Hong

Kong is actively promoting FinTech and the

development of blockchain, artificial

intelligence, store value facilities and virtual

banking. However, given limited market size

and technology talents, it is necessary to

consider alternatives. The development of

FinTech in the Pearl River Delta started

earlier with better foundation. In particular,

Qianhai has formulated industrial

accumulation, containing leading enterprises

such as WeBank, Zhaolian Consumer

Finance and more than 1,000 FinTech

enterprises. The Outline Development Plan

proposes to strengthen FinTech collaboration

between Shenzhen and Hong Kong.

Financial institutions of Hong Kong could

capitalize on the strength of talent and

technology in Qianhai and other two

platforms by assigning some of the research

and development functions there, so as to

break through the development bottleneck

and create synergy.

4. Opportunities for business relating

to the Belt and Road Initiative: The

Greater Bay Area will serve as a supporting

pillar for the Belt and Road Initiative. Hong

Kong will develop as an investment and

financing platform for supporting the Belt and

Road Initiative, as well as project investment

and business dispute resolution service

center. Qianhai will establish a cross-border

economic and trade cooperation platform,

support “going global” enterprises and

collaborate with Hong Kong to develop an

international legal services center and

commercial dispute resolution center.

Hengqin will collaborate with Macao to

establish international trade channels in Belt

and Road-related countries and regions.

There are many intersections in providing

financial services for the Belt and Road

Initiative.

5. Opportunities for securities and

insurance: The Outline Development Plan

supports the Hong Kong Exchanges and

Clearing Limited to develop a spot

commodities trading platform in Qianhai and

Nansha to establish a trading platform for

innovative insurance. Meanwhile, the Outline

Develop Plan proposes to promote cross-

border insurance progressively in the Greater

Bay Area, establish mutual access

mechanism for funds and products, support

Shenzhen to establish a pilot zone for

innovative insurance development and

bolster eligible Hong Kong and Macao

insurance institutions to set up operations in

Qianhai, Nansha and Hengqin.

Special Topic

Offshore RMB Express 9

6. Opportunities for specialized

financial services: The Outline

Development Plan proposes the Greater Bay

Area to actively develop specialized financial

services, such as green finance, financial

leasing, shipping finance and maritime

finance. Nansha will focus on developing

shipping finance and aircraft and ship leasing.

Hengqin will study the establishment of

health care fund for Macao residents.

Qianhai will strengthen green finance

cooperation with Hong Kong, and develop

modern service industry such as ship finance.

Financial industry of Guangdong, Hong Kong

and Macao will further develop on the three

platforms.

Qianhai, Nansha and Hengqin are of

great significance to Hong Kong’s financial

sector. The Outline Development Plan

introduces the concept of “joint development”,

encouraging Hong Kong and Macao to

regard the three platforms as new room for

development and an extension of the

offshore market. This will motivate Hong

Kong’s financial sector to participate more

actively, making full use of three platforms to

attract customers and seize business

opportunities.

Chart Book

Offshore RMB Express 10

Market Indicators

Hong Kong RMB Deposits (in RMB bn) RMB Cross-border Trade Settlement (RMB bn)

USD-CNH and USD-CNY Exchange Rates

Source: HKMA Source: HKMA

Source: Bloomberg

Chart Book

Offshore RMB Express 11

CNH HIBOR Fixing (%) Hong Kong Offshore RMB Bond Issuance (RMB bn)

CNH & CNY China Sovereign Curve (%, 29 Mar 2019)

FTSE-BOCHK Offshore RMB Bond Composite Index

Source: Bloomberg

Source: Bloomberg Source: Bloomberg

Source: BOCHK Global Market estimate

End of Mar:

End of Mar:

Chart Book

Offshore RMB Express 12

RMB Clearing Transaction Value (RMB tn)

SWIFT World payments currency ranking & market share

Source: HKICL

Source: SWIFT

October 2016 February 2019

40.55% USD #1

EUR 32.26% #2

GBP 7.61% #3

JPY 3.38% #4

1.85% CNY

EUR 34.99% #2

GBP 7.34% #3

JPY 3.51% #4

#5 1.82% #5 CAD

CNY #6 1.67%

USD #1 39.07%

1.75% #6

AUD

CAD

#7 1.49%

HKD #8 1.37%

15

Disclaimer: This report is for reference and information purposes only. It does not

reflect the views of Bank of China (Hong Kong) or constitute any investment advice.

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