HK will still be offshore yuan center: US offcial

Hong Kong is still poised to be the leading offshore yuan financial center even if yuan currency becomes fully convertible immediately, Under Secretary for Financial Services and the Treasury Julia Leung reckoned.

"Even though the US dollar and the Euro are two fully convertible international currencies, London is still the leading offshore trading center of these two currencies," Leung said. "(Similarly) in the process of the yuan becoming fully convertible gradually, Hong Kong will still have room to develop into a leading offshore yuan financial center."

Leung, who gave the media briefing after the Hong Kong Investment Funds Association's 6th annual conference held in the city on Monday, warned that Hong Kong should not be complacent. "Once the yuan is fully convertible, it will threaten Hong Kong's position as an offshore yuan financing center. If Hong Kong cannot maintain its competitiveness and slash the cost of financial services activities, investors may turn toward the mainland onshore market."

As to whether the recent yuan rally against the US dollar would provoke another capital inflow into the city, Leung said that she expected more "hot money" to flow into the city to search for more returns. However, the Hong Kong government would not introduce any measures to curb capital inflows, she added.

Leung envisaged that the yuan appreciation prospects will induce more international organizations based in Hong Kong to adopt the Chinese currency as more yuan funds flowed into the city through the trade settlement channel.

She expected offshore yuan financing activities in the city to be more broad-based as the issuance of dim sum bonds burgeoned, while yuan-denominated investment products would become more diversified and yuan trade settlement to balloon.

At the same conference, Ashley Alder, the chief executive officer of the Securities and Futures Commission (SFC), said that the SFC will act proactively to understand the yuan currency policy of the mainland.

He also noted that the SFC is liaising with the fund management industry to understand the Hong Kong Investment Funds Association's proposal to introduce yuan-denominated funds related to Hong Kong and overseas equity and bond investments.

"The discussion will be based on whether there are adequate yuan liquidity, market demand and risk disclosure," Alder added.

Yuan-denominated investment products in Hong Kong reached another milestone when the Hopewell Highway Infrastructure became the first company to issue yuan-denominated and Hong Kong dollar-denominated share tranches simultaneously in the city on Monday.

Hong Kong Exchanges and Clearing Ltd (HKEx) Chief Executive Charles Li said that the "Dual Tranche Dual Counter" (DTDC) share-trading model will become a new channel for corporations to raise yuan capital.

"If the market liquidity and legitimacy toward the DTDC model is adequate enough, this can help support the development of the DTDC share-trading model. Corporations which have strong yuan income streams will be induced to issue shares using the DTDC model because the channels can be utilized to raise yuan funds," Li said, admitting that the current yuan liquidity pool of nearly 600 billion yuan is still thin and not large enough to propel large-scale development of yuan-denominated share issuance activities.

oswald@chinadailyhk.com