(Original script, may differ from delivered version)
Ladies and gentlemen, good afternoon, and thank you Alexander for that introduction. This time last year, almost to the day, I stood on a platform just like this and said how thrilled I was that London Stock Exchange was holding its Greater China Forum in Hong Kong for the first time. I hoped then that it would be the first of many. And so, I am delighted that the London Stock Exchange Group has elected to return to China’s top financial centre for the second year running, and invited me to address you once again.
For those who might not have been there – or were they, and heavens forbid, don’t have a crystal clear recollection of what I said – my key messages to this Forum last year were three points on why June 2014 was a great time to talk about London’s role in China’s capital markets:
First, due to the burgeoning avenues for shifting capital in and out of China, the RMB market was growing rapidly and full of potential.
Second not only did London have a great story to tell, but developing the RMB market was a priority for the Government.
Third – no better place to have this conversation than Hong Kong, which retained the lion’s share of the offshore RMB market, at the cutting edge of new channels for capital flows.
Looking at these three messages now, they’re as true as ever.
The RMB market continues to grow, and has grown somewhere in the region of 50% since this time last year. From a UK perspective, our story as an RMB hub is still very positive, and the new British Government as committed as ever.
The same Chancellor – who recognises the importance of Hong Kong to London’s success as an RMB market and sees that market’s growth as the most important event in global capital markets of the 21st Century – still sits in no. 11 Downing Street. Indeed, at last week’s Mansion House speech, he reiterated his commitment to ensure that by the end of this Parliament, London will have further established itself as the pre-eminent Western location for the RMB. Some might claim George Osborne’s strategy on the Renminbi was even endorsed by the British electorate. Although it’s fair to say that there were other factors at play in domestic politics – it probably wasn’t RMB internationalisation what won the election…
Hong Kong remains by far the largest offshore RMB hub, and the headline advances in the opening of China’s capital account have been anchored via Hong Kong.
But this underplays the massive changes we have seen in the last 12 months. The messages are broadly the same, but we are in a wholly different place now 12 months on:
Yes the market is still growing, but the pace of reform and rapidity of capital market overhaul has accelerated beyond what we could have anticipated one year ago.
And as for the UK, the return of the Chancellor and Prime Minister in a new Conservative government are significant to this agenda: as it is their personal commitment that has seen strengthening of the already close UK-China financial cooperation relationship in the last 12 months. Since I last addressed you:
Chancellor George Osborne hosted the first UK-China Financial Forum, attended by China’s Premier Li
People’s Bank of China appointed China Construction Bank in London as the first RMB clearing bank outside of Asia
the UK and China agreed to explore recognition of funds with China
the 4th London-Hong Kong RMB Forum held in London
weighty Chinese institutions expanded their roots in London – ICBC became the first Chinese bank to open a wholesale branch in London since the founding of the People’s Republic of China, with CCB following suit and CDB announced plans to open its first representative office in Europe in London
and finally of course, there was the UK’s decision in April to become the first major western country to join the new Asian Infrastructure Investment Bank. The AIIB has the potential to address the $8 trillion infrastructure gap in Asia. The region can only benefit from more multilateral funding which is transparent. This move should also be seen in the context of UK policy towards the whole Asia Pacific region: promoting cooperation and rules-based relations instead of coercive behaviour, and supporting our like-minded partners
and we shouldn’t forget that two world first bonds were issued in London – the first sovereign RMB-donominated bond outside of Greater China was issued to finance the UK Government’s debt
the China Development Bank (CDB) issued a RMB 2 billion bond in London, the first by a quasi-sovereign outside of Greater China
the third world class bond is to come later this year – the biggest and most exciting ever, with new technical enhancements to counter damaging global trends. No – this is not market sensitive information that I have inadvertently spilled. It’s the latest Bond movie in the form of Spectre…
Hong Kong’s centrality to the opening of China’s capital accounts has risen to new levels. Revolutionary schemes that we had barely even heard of last June – Stock Connect – have since gone live and expanding south from Shanghai, and others that had been years in the making have finally emerged – Mutual Recognition of funds. And more rapidly and successfully than any could have anticipated.
It is no surprise, then, that all the talk in Hong Kong is about the wider and wider opening up of China’s capital markets, and what this means – for Hong Kong, for China, and for the global markets.
So going back to that speech I gave last year, I’d like to correct just one thing. I said that I could not think of a better time for the London Stock Exchange to host a conference in the thick of the action in Hong Kong to discuss China’s capital markets. Little did I know then, but there is a better time. And that time is now.
The panel session coming up next is going to address London’s role in providing access to China’s capital markets, and access in turn for Chinese capital to Europe and the world’s capital markets. So I’d like to finish by making the case for greater links between UK and China capital markets; and how Chinese and global investors alike might capitalise on these closer ties.
This case rests on three pillars.
First, there is the strength of the UK’s track record as a Global Financial Centre. London is among the most established and globally-oriented international financial centres in the world. And, I would add, the Chancellor made it clear last week he does not want the UK to rest on its laurels – this Government wants to “ensure we have the best, and most competitive financial services in the world”. He spelt out what this means –
the best regulated and most innovative industry in the world
an industry that is embracing the disruptive power of fintech and providing more high quality jobs across the UK
an industry that retains pole position in financial markets, derivatives and foreign exchange
London is already dominant across a range of markets:
more dedicated international portfolio equity assets are under management in London than in any other financial centre (with $2trn of international equity assets under management)
London remains the leading foreign exchange trading centre, with 37% of global turnover, as well as the global centre for derivatives trading, with 46% of OTC interest rate turnover
London is the leading global centre for international Eurobonds: London-based firms account for 60% of the primary market and 70% of the secondary market
and I’m sure our hosts will not mind if I share with you some of the benefits that the LSE brings to this picture:
over 1,500 bonds were issued on London Stock Exchange’s (LSE) debt markets in 2014, raising more than $350billion in 25 different currencies
over 40% of all major exchange listed international companies are listed on the LSE, more than any other exchange
LSE’s average daily value traded is $8.75bn, with 358 member firms, and 2,426 companies from 115 countries
the top 20 companies by market capital on LSE are from 8 different countries, reflecting London’s familiarity with overseas issuers
Secondly, London is established as the world’s second RMB trading centre. London is already a truly global centre for RMB finance. It accounts for two thirds of all RMB payments outside of China and Hong Kong. The city can lay claim to around 14% of the total market activity across the offshore RMB market, at least 5% ahead of the nearest competitor outside of Hong Kong. London has consistently been the most open to Chinese investment out of all financial centres.
Thirdly, this rise of London as a centre for RMB trading is about more than just RMB-denominated FX or trade payments. The RMB ecosystem in London is thriving. There has long been a wide variety of products and services available in RMB in London, something which the LSE has been pivotal in developing.
since 2004, Chinese companies have raised over £2 billion on UK markets. In 2014, seven Chinese companies joined the Alternative Investment Market (AIM), the LSE’s market for small businesses
there are currently 32 dim sum bonds listed on LSE markets with a combined outstanding amount of RMB 23.5 billion
HSBC issued the first RMB denominated retail instrument in April 2012, raising CNY 2 billion
5 RQFII Equities ETFs have been listed since 2014, providing investors with direct exposure to Chinese A-Share equities
in March 2015 the first London-listed RMB-denominated money market ETF was launched, giving European investors access to China Interbank Bond Market securities
LSE Group’s index company FTSE has built a strong business in China. With a market share of over 75%, the FTSE China Index Series is the leading set of benchmarks for investors to access China’s domestic market through A-Shares
LSE Group runs the largest European equity, fixed income and ETF platforms, with a huge presence in the Eurozone
and recently FTSE – part of the wider LSEG group – took the important step just a few weeks ago of launching two transitional indices that include Chinese A-shares. With the opening of China’s capital markets investors have increasingly been looking for a benchmark. It is significant that the first indices to offer these investors a solution call London home
finally, we heard earlier today about a fantastic example of how London and Hong Kong can work together to facilitate greater access between China and Europe’s capital markets: today’s announcement that LSE have received a license from the SFC to allow Hong Kong firms to trade directly on LSE’s markets. This is great news: for LSE; for Hong Kong firms who have been demanding this link for sometime; for UK-China financial links; and for London as an RMB hub. Congratulations to the LSE team for forging these ties in time for today’s events
These three pillars provide the solid foundation for an even stronger partnership on capital markets. In 2015 and beyond, more reforms are coming that will unleash what one visiting HM Treasury official described as a “tidal wave” of capital from China to the world. And I know that UK firms, many of them in this room and indeed some of them coming up on our next panel, have been working hard to seize the opportunities this presents with both hands.
We therefore look forward with great anticipation to three key bilateral events later this year that will allow the UK to seize the moment to make further strides in the RMB market:
the annual Economic and Financial Dialogue is due to take place in the autumn of this year in Beijing
the first Chinese State Visit since 2004 will see President Xi Jinping set foot on the UK’s shores in October
and later in the year, the 5th London-Hong Kong Forum will take place, in conjunction with our good friends at the HKMA, here in Hong Kong
We and colleagues in HM Treasury have been consulting the private sector about what we should aim to agree at these meetings, and negotiations with our Chinese partners have begun.
I don’t want to go into specifics at this stage, but we are confident that – as has been the case the past 2 years – we will emerge with new announcements that will underscore the UK’s place as the globe’s second RMB centre, and reconfirm our close partnership with both Hong Kong and China.