Hong Kong Monetary Authority launches 100 billion yuan Renminbi Business Facility, allowing business owners to borrow yuan from Hong Kong banks at onshore rates for up to 12 months. Hong Kong dollar interest rates are more than double those of mainland yuan loan rates. Scheme aims to promote city as offshore yuan trading center.
Yuan, officially called renminbi, not fully convertible but used for trade settlement since 2009. Yuan now second most-used currency in global trade finance at 7.6%, up from 2.1% four years ago. Projects like stock connect and bond repo arrangement aim to promote international use of yuan.
Hong Kong largest offshore yuan market, conducting 76% of offshore yuan payments in August. Yuan remittances via Hong Kong for trade settlements rose 62% to 997 billion yuan in August. New bond repo scheme allows international investors to use onshore holdings as collateral for funding, boosting supply of yuan.
Measures like bond repo scheme aim to promote ecosystem for investment, financing, and currency hedging. Expected to stabilize interest rate market for offshore yuan and narrow pricing differentials between onshore and offshore yuan. Regulators push reforms amid decreasing demand for US dollar assets due to global economic uncertainty. Investors are turning to gold, China, Hong Kong stocks, and assets in various currencies, including the yuan. This shift is encouraging more investors to buy yuan-denominated dim sum bonds and use the yuan for trade settlements, strengthening Hong Kong’s position as an offshore yuan trading center.
HSBC and Standard Chartered are among the first lenders to participate in the cross-border bond repo market. Wong Tsz-Cheuk, head of markets and securities services at HSBC Hong Kong, sees the new repo arrangement as a ‘win-win’ for foreign institutional investors and mainland lenders.
The repo arrangement allows mainland banks to lend yuan to other banks or investors using collateral like government bonds. This move will help lower the cost of yuan funding for international investors, as the offshore yuan interest rate had been higher than the onshore rate.
Citi’s Lam suggests developing a central clearing agency to settle all repo lending, reducing counterparty risks and standardizing current bilateral repo arrangements between banks. This move aligns with plans to promote Hong Kong’s fixed income and yuan-based businesses.
Philippe Dirckx from Asifma supports connecting mainland China and Hong Kong’s market infrastructure with international systems, enabling Chinese government bonds held in Hong Kong to be used as global collateral. These measures aim to establish Hong Kong as a regional liquidity hub and enhance the internationalization of Chinese bonds.
The RMB Business Facility has proven popular among businesses like Yip’s sewage treatment company and clients of ICBC (Asia). The facility has provided nearly 120 billion yuan in trade financing since 2024, optimizing offshore RMB liquidity supply and easing interest rate fluctuations in the offshore RMB market.
The introduction of the RMB Business Facility offers a stable and flexible source of RMB funding for clients, contributing to the development of Hong Kong’s foreign exchange and bond markets. Analysts believe these new measures will further solidify Hong Kong’s position as a financial hub for global investors. Hong Kong maintains its position as the fourth largest foreign currency trading market due to the internationalization of the yuan. Beijing’s decision to allow non-bank financial institutions to invest in bonds via the Bond Connect boosts liquidity in the dim sum bond markets. This move benefits businesses like Yip’s treatment plant, which borrowed HK$20 million to invest in China.
Yip, who set up his treatment plant in China in 2016, is exploring opportunities for a yuan loan in Hong Kong. Despite being able to get bank loans in China, Yip prefers Hong Kong due to local bankers’ understanding of the needs of Hong Kong enterprises. This move aligns with the increasing importance of yuan trading in Hong Kong’s financial market.
Read more at Yahoo Finance: How Hong Kong is building an ecosystem to solidify its role as offshore yuan hub