London is best placed for currency moves

Sun Yu, general manager of Bank of China London Branch. Provided to China Daily

Sun Yu, general manager of Bank of China London branch, discusses internationalization of renminbi

What do you expect from President Xi Jinping's state visit to the country?

We are confident it will be an extremely successful visit that will cement relations in economics, culture and friendship, and that heralds a golden decade for the two countries. In economics, we expect a surge in trade and investment. As China's most globalized bank with a worldwide network and most diversified financial services platform, Bank of China has a strong competitive edge in facilitating these business opportunities. We will be delighted if the state visit helps build on the People's Bank of China's issuance of renminbi-denominated notes in London, leading to more renmibi-denominated products being made available to investors there so that the city becomes the world's pre-eminent offshore renminbi trading center.

As renminbi internationalization proceeds, how will it change China's economic relations with the UK?

The UK and China will work much more closely together in the financial sphere, and the two countries will become a lot closer in economics generally. For example, among the successes at the seventh UK-China Economic and Financial Dialogue in Beijing in September, both sides agreed to continue to strengthen coordination on macroeconomic policy and to adopt policies commensurate with economic and financial circumstances at home and abroad. They also agreed to promote strong, balanced and sustainable economic growth in both countries and in the world at large.

In bilateral trade and investment, they agreed to hold the first meeting of the China-UK Bilateral Investment Taskforce this year to promote further bilateral investment and optimize the investment environment.

Given Britain's strength in providing world-class financial advice, it may be possible to replicate the success of UK-China collaboration in the Shanghai Free-Trade Zone and in new pilot free trade zones in Guangdong and Fujian provinces and Tianjin.

Moreover, the China Development Bank and UK Trade and Investment will build and oversee an investment/financing collaboration platform to include British and Chinese financial institutions to serve investors in both countries in infrastructure and energy.

Recently, Britain's Chancellor of the Exchequer, George Osborne, urged China to bid for seven contracts to build a high-speed rail service in Britain worth 11.8 billion pounds ($18 billion; 15.9 billion euros) in total covering the first phase between London and Birmingham.

Bank of China, in its 86 years in Britain, has played a role in promoting economic and trade relations between the two countries. In September, the bank organized the first ever China-UK Cross-Border E-Commerce Cooperation Roundtable in Shanghai, British Secretary Sajid Javid signed an agreement on behalf of UK Trade and Investment with the Shanghai Cross-Border E-Commerce Public Platform. The agreement will support UK exporters and help promote their online sales in China. Bank of China will sign a memorandum of understanding with UKTI this month, and a joint report on China-UK cross-border e-commerce will be published later.

The British government is keen to develop an offshore renminbi center in London. What business changes does Bank of China need to make in line with this?

When cross-border renminbi pilot programs were launched as early as July 2009, Bank of China London Branch took the lead in the London market, offering comprehensive renminbi products and services to companies, individuals and institutional customers. Thanks to more than six years' hard work, the bank's renminbi business has grown rapidly, keeping the bank in the box seat in the London offshore renminbi market. For example, it has more than 60 percent of renminbi trade finance.

London, as an established international financial center, has grown into an offshore renminbi trading center, with its renminbi foreign exchange dealings approaching those of Hong Kong. So the bank now needs to upgrade its trading operations to make it even more competitive in London.

The bank is now building a global service platform for customers comprising of a trading center, syndication center and commodity center. This month, to fully utilize London's position as a rising offshore renminbi trading center, the bank will launch a Europe, Middle East and Africa trading center for Bank of China Group in London. It will be the group's second-largest offshore trading center after Hong Kong, permitting a 24-hour integrated operation of the group's financial markets business and reinforcing London's place as the global offshore renminbi trading center.

What role can Chinese and international banks play in building a renminbi offshore center in London?

First, in the going-global era, Chinese banks have a lot of expertise in helping Chinese companies venture overseas. Conversely, Chinese banks are great platforms for overseas companies seeking to expand into the world's second-largest economy and one of the fastest- growing ones.

Second, Chinese banks focus on providing traditional banking services to companies from both China and Britain, but these banks are increasingly differentiating themselves by displaying a better grasp of macroeconomic developments in China. As China integrates more into the global economy, with aspirations for the renminbi to become a reserve currency, the ability of Chinese banks in being able to analyze China's economic policies and how they can influence the rest of the world gives the banks a strong advantage.

Last but not least, Chinese banks have a strong lead over foreign banks in formulating new investment opportunities derived from China's financial reform through interpreting government policy.

International banks, on the other hand, have complementary advantages over Chinese banks on the back of their long history and rich experiences in global markets. By working together, we can achieve a win-win situation in promoting renminbi internationalization and building the renminbi offshore centre in London.

Bank of China also aims to act as a bridge between British and continental markets and China to help Chinese customers venture abroad, and to help foreign customers to explore the huge business opportunities in China. The bank, drawing on its worldwide network, provides firsthand business opportunities and comprehensive banking services to its customers worldwide.

What are the main challenges in internationalizing the renminbi?

One is that the real economy's acceptance of the currency outside the Asia-Pacific region is relatively low at the moment. Although Chinese banks have developed an overseas corporate customer base with keen interest in renminbi, overall renminbi awareness and use by individuals and enterprises among offshore real economies is limited.

The other great challenge is further reforming the domestic financial system and at the same time maintaining its security and stability, such as liberalizing interest rates and the exchange rate, and opening up the capital account. With all of this, internationalizing the currency will take time and needs to be carefully planned. It also requires significant investment in financial market infrastructure and development.

However it's only a matter of time, we are glad to see things are on the right track. As the RMB sets on its path to be part of the IMF's SDR basket, we believe this would spur further interests for global investors to hold RMB, enabling the currency to become a truly global currency in the long run.

What do you think of London's efforts to become the Western offshore renminbi center?

London is the world's largest foreign exchange trading center, with 37 percent of global turnover, as well as the global center for derivatives trading, with 46 percent of over-the-counter interest rate turnover.

London has now established itself as the world's leading offshore renminbi trading center. According to the electronic broking services, trading volume in London now accounts for more than half the world's total.

It is widely accepted that an important milestone in the renminbi's internationalization is for it gradually to become a global trading currency. So London has a very important role in helping it expand its breadth and depth in the international financial markets.

Data from the past few years has shown that the market share of renminbi foreign exchange trading in London is far more than that of other overseas competitors apart from Hong Kong, which proves the strength of London's record of rapidly responding to new market needs as they have emerged from worldwide financial markets opening up.

As the relationship between China and the UK enters into the new chapter of "Golden Decade", China is set to issue government bonds in renminbi in London, picking the city as the first overseas financial centre in which to open a sovereign debt market. It is also said that a few billion renminbi in short-term PBOC notes were likely to be the first move in London. It will be another milestone and continue to prove London's leading role in building the western offshore renminbi center.

Sun Yu talked to Zhang Chunyan in London.

Contact the writer at zhangchunyan@chinadaily.com.cn