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Eddie Ching Chief Operating Officer, Financial Institutions Group, Asia Pacific
Agenda
1. 2. 3. 4. 5. 6. 7.
Offshore RMB - Overview China and RMB RMB Trade Settlement RMB Opportunities Offshore RMB Market Offshore RMB Other Considerations HSBC RMB Product Capability & Experience
China
1.3 2 1
nd st
Source: 5
Billion people
[1]
Largest Economy
[2]
16 14 12 10 8 6 4 2 0
14.3
(Trn USD)
5.1
4.9
3.4
0.8
2.7
0.6 0.4
0.5
US
Japan
0.2
China surpassed Japan as the worlds 0.0 2nd largest economy in 2Q 2010
[2]
China
Germany
US
Japan
Source: [1] International Monetary Fund / CIA The Worlds Factbook / Businessweek.com [2] http://www.bloomberg.com/news/2010-08-16/china-economy-passes-japan-s-in-second-quarter-capping-three-decade-rise.html 6
RMB
Could become the 3rd highest turnover currency in the world if RMB is fully convertible
Daily Avg Turnover (USD Bn) 3000 2500 2000 1500 1000 500
RMB EUR USD
GBP JPY
1000 500 0
RMB
GBP JPY
0
2007 BIS Data
Note: Estimate of RMB daily average FX turnover is based on a turnover-to-trade ratio of 0.3, which is lower than 0.32 for EUR, 0.4 for YEN and 0.46 for GBP. The rise in use of RMB will offset the use of USD, EUR, YEN, and GBP at a share of 40%, 30%, 20% and 10%. Source: HSBC estimate 8
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Geographical coverage: Since June 2010, RMB Trade Settlement Scheme has been expanded to 20 cities and provinces across China, and to all overseas counterparty countries and regions, covering 95% of Chinas import/export trade volume Chinese enterprises eligible to conduct trades in RMB: All entities in approved cities and provinces can pay out RMB (import) Mainland Designated Enterprises (MDEs) can receive RMB (export) Latest 67,300 as at 30 November 2010
Transaction eligibility: Banks and authorities in China will conduct transaction validation. No validation needed overseas Retail flows into China not allowed
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Deposit-taking Currency Conversion Remittance Interbank transfer via RTGS, Cheques, Notes Lending Investment Products
All Other Countries (Exporter) Mainland Designated Enterprises (MDE) (Importer) All Enterprises * Provided that the overseas banks RMB platform is ready
Service trade and other current Beijing (), Tianjin (), Inner Mongolia (), Liaoning (), Shanghai ( ), Jiangsu (), Zhejiang (), Fujian (), Shandong (), Hubei (), account transactions flow RMB Funds flow
Guangdong (), Guangxi (), Hainan (), Chongqing (), Sichuan ( ),Yunnan (), Jilin (), Heilongjiang (), Xizang () Xinjiang ()
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56% of exporters and importers in HK expect to settle trade transactions in RMB by 2011 (2) 17 major markets in Asia-Pacific expect to increase RMB trade activity by 2011 (2)
More than half of Chinas total trade flows with emerging markets will be settled in RMB by 2015 (1)
Hong Kong's RMB trade settlement volume will reach RMB2.2trn by 2020. This is the same size as Hong Kong's total trade in all currencies today (1)
2010 | 2011 |
Notes: (1) HSBC in-house estimates (2) HSBC Trade Confidence Index
2015|
2020|
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70,000 60,000
50,000 30,000
Source: http://www.info.gov.hk/hkma/eng/statistics/msb/attach/T030302.xls (Figures from HKMA) RMB Trade Settlement Volume from HKMA and public media release 14
RMB Opportunities
Open RMB account Purchase RMB FX or conduct RMB FX Forward/Swap/Option/IRS Trade and settle goods and services trade with enterprises in China or overseas in RMB, be it under Documentary Credit or Open Account Invest in RMB instruments including deposits, structured products, bonds, and even shares Borrow or raise RMB funding through bank borrowing, trade finance and bond issuance, and soon equities Asset Liabilities and currency risk management
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Account and payment services Trade and trade financing for corporate CNH FX sales and trading CNH bond sales and trading Balance sheet management via CNY bond investment (in Hong Kong and/or China) Debt capital raising issuance of CNH bond in Hong Kong CNH bond custodian services
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Insurance Companies CNH insurance policy CNH unit link products CNH bond investment CNH FX trading and hedging
Traditional / Alternative Funds CNH investment funds, institutional or retail CNH FX trading and hedging CNH bond trading
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Type of RMB
NDF CNY offshore non-deliverable forward rate available to corporate and institution internationally
CNH Trade offshore deliverable forward rate provided by the RMB Clearing Bank in Hong Kong referencing onshore CNY rate for corporate engaged in cross border China import/export trade settlement
CNH General offshore deliverable forward rate openly traded and available to corporate and institution internationally
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Source of Fund: FX with HSBC China or HSBC Hong Kong Borrowing from HSBC China or HSBC Hong Kong
RMB balances can be invested in: Interest bearing accounts (in China) Overnight deposits Term deposits RMB Bonds Investment funds and structured products (in Hong Kong)
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FX Trades: RMB spot with HSBC China Forwards not available to offshore counterparty After hours trades possible via email, with SWIFT confirmation on next business day Subject to the quota assigns to HSBC China by PBOC
Borrowing: Can borrow RMB from HSBC China Limited up to 1 month in tenor by regulations Subject to the quota assigned to HSBC China by PBOC
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FX Trades: RMB spot with HSBC Hong Kong Forwards, Options and Swap available During RMB Spot Market Trading hours deals can be booked through Reuters or directly with our HSBC FX Desk No regulatory quota but subject to availability in interbank market
Borrowing: Can borrow RMB from HSBC Hong Kong No limit in tenor or size but subject to liquidity conditions in market
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Money market rate for RMB obtained from Trade purposes and another for General purposes Money market rate for General purpose is around 50-75bps lower than that of Trade purposes A good indication of the rates can be found on HSBCs Reuters page HSBCRMB Free transfer of RMB funds across different accounts
Any payment, for goods/service, investment products, or even salary can be effected in RMB Banks become more active in managing RMB funding. Interbank wholesale money market liquidity gradually develops to cope with funding demands. The offshore RMB interest rate should evolve to become more market-based
Two tier market now exists, Participating Banks in Hong Kong quote 2 types of RMB exchange rate as follow: - Exchange rate for Trade purposes
HK Spot market - Daily volume of USD300400m, and growing weekly - Transaction size of USD110m HK Forwards - Daily volume of USD250m, average ticket size USD2-3m, Bid-Offer Spread narrows to 50bps - Tenor of upto 2 years is actively traded in the market - Offshore USD/RMB Forward is quoted at premium and onshore Forward is at discount
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Pricing Date 25-Nov-10 22-Nov-10 22-Nov-10 22-Nov-10 22-Nov-10 24-Nov-10 15-Nov-10 15-Nov-10 9-Nov-10 9-Nov-10 22-Oct-10 18-Oct-10 15-Oct-10 11-Oct-10 8-Oct-10 8-Oct-10 17-Sep-10 16-Sep-10 16-Sep-10 16-Sep-10 7-Sep-10 7-Sep-10 2-Sep-10 2-Sep-10 1-Sep-10 19-A ug-10 10-A ug-10 7-Jul-10 6-Jul-10 28-Sep-09 28-Sep-09 28-Sep-09 7-Sep-09 14-A ug-09 10-A ug-09 29-Jun-09 25-Jun-09
Is s ue r The Export - Import Bank of China Ministry of Finance of China Ministry of Finance of China Ministry of Finance of China Ministry of Finance of China Caterpillar Financial The Export - Import Bank of China China Merchants Holding HK China Resources Pow er China Resources Pow er Sinotruk A sian Development Bank China Development Bank China Development Bank ICBC (A sia) ICBC (A sia) Deutsche Bank Bank of Tokyo-Mitsubishi ICBC (A sia) ICBC (A sia) Bank of China Bank of China China Development Bank China Development Bank China Development Bank McDonald's Corporation HSBC Hopew ell Highw ay Inf rastructure Citic Bank International Ministry of Finance of China Ministry of Finance of China Ministry of Finance of China HSBC Bank (China) China Development Bank China Development Bank Bank of East A sia (China) HSBC Bank (China)
Is s ue r Rating Am ount Coupon M atur ity M oody's S&P (RM B m n) (%) Date A a3 A+ 1,000 1.950 2-Dec-12 A a3 A+ 1,000 2.480 1-Dec-20 A a3 A+ 2,000 1.800 1-Dec-15 A a3 A+ 2,000 1.000 1-Dec-13 A a3 A+ 3,000 TBA 2Y R A2 A 1,000 2.000 1-Dec-12 A a3 A+ 4,000 2.650 2-Dec-13 700 2.900 19-Nov-13 1,000 2.900 12-Nov-13 1,000 3.750 12-Nov-15 2,700 2.950 22-Oct-12 A aa AAA 1,200 2.850 21-Oct-20 3,000 2.700 11-Nov-13 2,000 3mSHIBOR+10bps 14-Oct-13 117 2.300 22-Oct-12 47 2.650 22-Dec-13 200 2.000 28-Sep-12 20 1.980 26-Sep-11 1,000 2.250 24-Sep-12 1,000 2.250 24-Sep-12 A2,200 2.650 30-Sep-12 A2,800 2.900 30-Sep-13 500 2.100 13-Sep-12 1,000 2.100 13-Sep-12 100 1.950 12-Sep-11 A3 A 200 3.000 16-Sep-13 114.45 2.000 17-Feb-11 1,380 2.980 13-Jul-12 500 2.680 20-Jul-11 A1 A+ 3,000 2.250 27-Oct-11 A1 A+ 2,500 2.700 27-Oct-12 A1 A+ 500 3.300 27-Oct-14 A 1 / Prime-1 2,000 2.600 14-Sep-11 A1 A+ 2,000 2.450 20-A ug-11 A1 A+ 1,000 3mSHIBOR+30bps 20-A ug-11 A4,000 2.800 23-Jul-11 A 1 / Prime-1 1,000 3mSHIBOR+38bps 13-Jul-11
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Offshore RMB Bonds/CD Issuance RMB (Bn) 25 Issue Amt by Offshore Entity Issue Amt by Onshore Entity # of Issues # Of Issues 30 25 20 15 15 10 10 5 5 0 2007 2008 2009 2010 YTD
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The graph shows the yield differentiation between Onshore and Offshore market. The Onshore curve is mainly determined by PBoC policy on deposit and lending rates, whereas the Offshore curve is mainly affected by the 0.865% call rate set by the Clearing Bank as compare with 2.50% Onshore 1Yr Deposit Rate.
Indicative Yield for Onshore and Offshore RMB Bonds Yield (%)
4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 1 2 3 4 5 6 Tenor (year) 7 8 9 10
Onshore Government Bond (MOF) Onshore Policy Bond Offshore Government Bond (MOF) Hopewell McDonald's Corporation Bank of China China Development Bank ICBC Asia Asia Development Bank Deutsche Bank China Resouces Power UBS Sinotruk China Merchants Holding HK
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HSBC China is the first and only foreign bank approved as clearing agent in China and can provide one-stop services for clients trading, clearing and custody in China interbank bond market
Eligible Investors
Foreign central banks or monetary authorities Offshore RMB trade settlement banks
Source of Fund: RMB fund generated from central bank currency cooperation, cross-border
trading or RMB investment business.
Investment Scope: Currently foreign investors can engage in government bonds, PBOC bill,
financial bond, commercial paper, and mid-term notes but repurchase transactions, derivatives/structured products and leveraged trading are not allowed.
Quota Control: The net remitted-in capital cannot exceed the investment quota approved by the
PBOC at any point of time.
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4. CFETS CFETS 5.
Starts Trading
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Movement of RMB crossing China border must be supported by an underlying commercial transactions, between two companies RMB capital account movement, e.g. capital injection or shareholders loan into China, requires one more PBOC approval on top of usual regulatory approval
Specifically for Hong Kong Only No RMB lending to individuals Personal RMB conversion remains at CNY20,000 per day
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1st foreign bank to settle cross-border RMB Trade in Hong Kong 1st foreign bank to settle cross-border RMB Trade in all ASEAN countries with HSBC presence 1st foreign bank to settle cross-border RMB Trade in all six continents 1st foreign bank to offer RMB current account and cheque services in Hong Kong 1st foreign bank granted RMB corresponding banking license in China 1st to issue RMB Certificate of Deposits in Hong Kong 1st to issue RMB Bonds in Hong Kong 1st to execute RMB Interest Rate Swap in Hong Kong 1st to launch RMB Structured Deposit in Hong Kong 1st and Only foreign bank to provide interbank RMB bond clearing/custody services in China 1st and Only foreign bank as market maker of RMB-Ringgit direct quotation in China No.1 Bond House for Offshore RMB and HKD issuances
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RMB Custody and Funds Administration Services Spot FX (for trade / general purposes) Deliverable FX Forward Deliverable FX Option Deliverable FX Swap Deliverable Interest Rate Swap Non Deliverable Forward
Trade financing facilities and commercial loans Borrowing / Financing Products Issuance of offshore RMB bonds/CDs Money Market
Investment Products
Time deposit, certificate of deposit Primary and secondary RMB bonds trading FX linked structured deposit Interest rate linked structured deposit Equity linked structured deposit Gold linked structured deposit RMB investment funds
Time deposit Call deposit Interbank bond trading (for banks only)
HSBC - First International Bank to settle cross border trade in RMB July 2009
Structured and traded equity linked RMB structured deposit in HK July 2010
One of the pioneer banks to sell large size general purpose RMB FX to corporate customer July 2010
Structured and traded Libor linked RMB structured deposit in HK Aug 2010
Oct 2010
Disclaimer
This document is issued by The Hongkong and Shanghai Banking Corporation Limited (HSBC). The information contained herein is derived from sources we believe to be reliable, but which we have not independently verified. HSBC makes no representation or warranty (express or implied) of any nature nor is any responsibility of any kind accepted with respect to the completeness or accuracy of any information, projection, representation or warranty (expressed or implied) in, or omission from, this document. No liability is accepted whatsoever for any direct, indirect or consequential loss arising from the use of or reliance on this document or any information contained herein by the recipient or any third party.
Any examples given are for the purposes of illustration only. The opinions in this document constitute our present judgement, which is subject to change without notice. This document does not constitute an offer or solicitation for, or advice that you should enter into, the purchase or sale of any security, commodity or other investment product or investment agreement, or any other contract, agreement or structure whatsoever and is intended for institutional, professional or sophisticated customers and is not intended for the use of private individual or retail customers. No consideration has been given to the particular investment objectives, financial situation or particular needs of any recipient. Recipients should not rely on this document in making any investment decision and should make their own independent appraisal of and investigations into the information and any investment, product or transaction described in this document. Unless governing law permits otherwise, you must contact a HSBC Group member in your home jurisdiction if you wish to use HSBC Group services in effecting a transaction in any investment mentioned in this document. This document, which is confidential and not for public circulation, must not be copied, transferred or the content disclosed, in whole or in part, to any third party. The document should be read in its entirety.
Copyright. The Hongkong and Shanghai Banking Corporation Limited 2010. ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the Hongkong and Shanghai Banking Corporation Limited.
References to HSBC Research are to opinions held by HSBC Global Research in previously published research reports and do not represent an endorsement by HSBC Global Research or any product or strategy referred to herein. HSBC Global Research is not under any duty to update any such opinions.
All the information set out in this presentation is provided on the best of the Bank's current knowledge and understanding of the relevant law, rules, regulations, directions and guidelines governing or otherwise applicable to RMB trade services but the Bank makes no guarantee, representation or warranty and accepts no liability as to its accuracy or completeness. Please refer to any updates that shall be published or issued by our Bank from time to time including notices that we place at our HSBC branches.
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