Topic: Hong Kong as RMB Offshore Center--

- What’s next?

Hong Kong Institute of CPAs

Annual Conference 2011

David Wong

Deputy Chief Executive

2

Market Overview

Opportunities in the Growth &

Development of the Off-shore RMB Market

What’s next?

3

Market Overview

Opportunities in the Growth &

Development of the Off-shore RMB Market

What’s next step?

4

Policy development of RMB business in HK

2004.2 RMB business with defined scope was firsts introduced in HK

2007.1 FIs in the Mainland could issue RMB Bonds in HK

2009.7Administrative Rules for the Pilot Scheme for Settlement of Cross-Border Trade in RMB

and the implementation regulations were announced by PBoC

2010.2HKMA released an elucidation on the supervisory principles and the operational

arrangements regarding RMB business

2010.6 PBoC announced the expanded Pilot Program of Cross-border RMB Trade Settlement Services

2010.7PBoC and BOCHK signed the revised “Settlement Agreement on the Clearing of RMB

Businesses”

2010.8PBoC announced a scheme which allows 3 kinds of overseas entities to invest overseas

RMB to the Mainland bond markets

2010.12HKMA announced certain refinements to the conversions of RMB conducted by

Participating Banks with their customers for RMB cross-border trade settlement transactions

2011.1 PBoC announced the Pilot Scheme on Overseas Direct Investment

Launch of RMB Fiduciary Account Service2011.3

5

Milestones of RMB Product

RMB trade settlement

scheme was expanded from

5 cities to 20 provinces and

cities in China

2010 Jun Jul

McDonlad first issued

CNH 200mn bonds as an

international corporate

Sep

CNH interest rate

swaption first introduced

NovOct AprDec 2011

The first HK corporate,

Hopewell Highway,

issued CNH bond for

CNY 1.38bn

First

Deliverable

CNH IRSShui On Property

issued the first

Synthetic CNY 3.0

bn bond

The first RMB

denominated stock, Hui

Xian REIT, listed in HKSE,

raised CNY10.48bn.

6

RMB deposit in Hong Kong

Source: HKMA

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

七月 九月 十一月 一月 三月 五月 七月 九月 十一月 一月 三月

0

2

4

6

8

10

12

14

16

企業 (左軸)

個人客戶 (左軸)

企業帳戶數目 (右軸)

億元人民幣 萬個

2009 2010 2011

RMB 100mio

Corporate (right scale)

Personal (left scale)

No. of corporate

accounts (right scale)

Remark: RMB deposit includes designated business customer deposits

Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar

160

140

120

100

80

60

40

20

„000 accounts

7

CNY vs CNH Spot Rate

6.4600

6.5100

6.5600

6.6100

6.6600

6.7100

6.7600

6.8100

6.8600

Onshore Offshore

Trading Volume of Offshore RMB Market

-1,000

2,000

5,000

8,000

11,000

14,000

17,000

20,000

10-Jun 10-Jul 10-Aug 10-Sep 10-Oct 10-Nov 10-Dec 11-Jan 11-Feb 11-Mar 11-Apr

8

0

20

40

60

80

100

120

140

160

Jul

2010

Aug

2010

Sep

2010

Oc t

2010

Nov

2010

Dec

2010

Jan

2011

Feb

2011

Mar

2011

Apr

2011

0

100

200

300

400

500

600

700

800

900

M onthly am t (left s c ale) A c c um ulated am t (right s c ale)

Cross-border RMB Trade Settlement

In RMB billion yuan

Source: HKMA

9

RMB offshore bond market

Dim sum bond Dim sum bond

(ex Synthetic)

Market outstanding issue amount (RMB bn) 136.42 115.50

Number of issues 142 137

Number of issuers 66 61

Average Yield 2.95% 1.88%

Average Maturity 2.66 2.20

Source: Bloomberg

10

Offshore RMB Bond Issue Size & Deals

RMB offshore bond market

0

50

100

150

200

250

300

350

400

2007 2008 2009 2010

0

5

10

15

20

25

30

35

40

May(May)

Corporate

FIs

Sovereign

No of issues

No of issues

40

35

30

25

20

15

10

5

0

RMB billion

11

Market Overview

Opportunities in the Growth &

Development of the Off-shore RMB Market

What’s next step?

12

Funding

Centre

Investment

Centre

Trading

Centre

13

Funding CentreInvestment

CentreTrading Centre

• Bond issuance /

underwriting

• Syndicated Loan

• IPO equity

• REIT

• Unit trust / fund

custodian services

• Insurance policies

• Structured

products

•Trade finance

• Remittance

• Foreign exchange

• Risk management

products

Hong Kong as a “FIT” centre

14

Market Overview

Opportunities in the Growth &

Development of the Off-shore RMB Market

What’s next ?

15

What’s Next ?

2. Qualified Foreign Institutional Investors (mini-QFII)

1. Overseas Direct Investment (ODI)

3. Investment in onshore bond market

Potential Opportunities

16

What’s Next ?

1. Standardization of FDI Process

2. Improvement of market infrastructure

3. Full convertibility of RMB

Challenges

17

Hong Kong as an International Financial Centre

Hong Kong as an offshore RMB centre and an important financial hub in Asia-Pacific region

In the 12th Five Years Plan for China, with HK as the offshore RMB centre, we need to continue to innovate and remain relevant for our clients and investors

Thank you!