China Focus: Chinese capital market accelerates deploying offshore RMB business
BEIJING, May 27 (Greenpost) — Shanghai Stock Exchange (SSE), China Financial Futures Exchange (CFFEX) and Deutsche Bourse Group signed a strategic agreement on Wednesday to jointly initiate an offshore RMB financial instrument trading platform in Frankfurt, Germany, SSE said in a statement Wednesday.
Prior to this, the People’s Bank of China (PBOC), the central bank, just expanded its pilot of RMB qualified foreign institutional investors (RQFII) to Chile on Monday, granting it a quota of 50 billion yuan (8 billion U.S. dollars).
Further more, officials from China’s securities regulator also disclosed that China will officially launch the Shenzhen-Hong Kong stock connect program in the second half of this year.
All signs show that China’s domestic capital market is speeding up deploying the offshore RMB business.
According to the strategic cooperation agreement of the three parties, they will incorporate a joint venture in Germany as the operator for the platform, said the statement.
The SSE, CFFEX and Deutsche Bourse will hold a stake of 40 percent, 20 percent and 40 percent in the new company, respectively.
The main functions of the company are to make R&D for offshore RMB-denominated securities and derivatives products and provide trading spot for these products, it said.
The new company is expected to start operation in the fourth quarter of 2015.
Dr. Gui Minjie, president of the SSE, expressed that the establishment of the platform will help promote the two-way opening up of China’s capital market, enrich investment tools for offshore RMB markets, and promote the RMB internationalization.
As a matter of fact, this is not the first time for China’s domestic capital market to cast its eye on massive offshore RMB markets.
In early 2012, a number of RQFII funds made their debut in Hong Kong and offered a back-flow channel for offshore RMB there, which marked the start of RQFII program.
The RQFII program keeps expanding, having lured 13 countries and regions to pilot the business after Chile’s entrance, with investment quota topping one trillion yuan.
On November 17, the Shanghai-Hong Kong stock connect program was officially kicked off, and over half of the 300-billion-yuan quota for the program has been used.
The launch of similar program in Shenzhen means the RMB will have a smoother investment and backflow channel.
Notably, the size of offshore RMB posted about a ten percent drop from a year earlier in the first quarter of this year due to the strong performance of the US dollar, which will not last long in the view of experts.
A report by the Deutsche Bank predicts the size of offshore RMB deposits will rebound as from April, will reach 3.25 trillion yuan by the end of this year, up 30 percent year on year.
Some scholars hold that RMB internationalization has become a key strategy for the opening up of China’s economy and financial industry.
Besides accumulating offshore RMB pool via trade and investment, desirable investment products and places are also needed for offshore RMB.
Therefore, China domestic capital’s deployment of offshore RMB markets will help further improve RMB’s international position. Enditem
Editor Xuefei Chen Axelsson