Authored article

London-Hong Kong: building the offshore RMB market

This speech was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Hong Kong and London will join hands in further developing the offshore RMB market, writes Financial Secretary to the Treasury Greg Clark.

This week, I am in Hong Kong to further progress in the partnership between HM Treasury and the Hong Kong Monetary Authority (HKMA) in developing offshore RMB markets.

A leading global financial centre and a gateway to mainland China, Hong Kong is a natural home for development of the offshore RMB market. Hong Kong’s business environment commands the confidence of investors worldwide, whether from London, Lanzhou or Los Angeles. Over 50% of UK investment in Asia is in or flows through Hong Kong. That is a tremendous vote of confidence in Hong Kong by UK companies.

So I am delighted that two of the world’s leading financial centres – London and Hong Kong – are choosing strategic areas to collaborate on, together connecting markets, getting liquidity flowing and growing the offshore RMB pool for businesses, traders and investors in China and overseas. At the Hong Kong/London RMB Forum, I will be joining the Deputy Chief Executive of the HKMA to explore with banks, corporates and investors the benefits and opportunities of settling trade in RMB, using RMB denominated products and services and the progress RMB is making as an investment currency.

My visit is the latest chapter in our sustained and substantial dialogue on financial, economic and trade developments. It follows visits to Hong Kong earlier this year by my colleagues Lord Deighton (UK Commercial Secretary to the Treasury) and Sajid Javid (UK Economic Secretary to the Treasury) and that of the Lord Mayor of the City of London earlier this week.

Through our meetings and conversations, we are pursuing new opportunities to promote trade and investment. The numbers speak for themselves: bilateral trade in goods between Hong Kong and the UK rose by 13.5% between 2009 and 2012, to a total value of £12.1bn in 2012. This makes Hong Kong the UK’s second biggest export market for goods in Asia Pacific.

On trade in services, I am determined to make the most of the relationships between the financial sectors in Hong Kong and Britain. The relative strengths and complementarities between our markets are clear: twice as many US dollars trade in the UK than the USA. Twice as many Euros trade in the UK as the Eurozone.

With Hong Kong’s support, London has become the leading offshore RMB centre in terms of payments with Hong Kong and China. According to the Society for Worldwide Interbank Financial Telecommunications (SWIFT), London now accounts for 28% of offshore RMB settled transactions.

In London, the volume of Renminbi denominated import and export financing has increased 100% since 2011. This is delivering real benefits and savings for business. It is estimated that firms can reduce their transaction costs with China by up to 7% by denominating their trade in Renminbi.

Our partnership with Hong Kong on the international RMB market is a central element of our economic strategy and co-operation with China. It flows from the fourth meeting of the UK/China Economic and Financial Dialogue in September 2011, at which both sides agreed to work together to support development of the offshore RMB market and to collaborate on the development of RMB-denominated financial products. Our co-operation with Hong Kong and mainland China is, in turn, central to the UK government’s economic strategy. The UK economy is turning a corner and increased trade and strong investment links will be crucial to ensure the recovery continues.

I hope that this week’s meeting of the London/Hong Kong Forum will take further support development in the offshore market in both centres, building on our positions as the RMB hubs of the East and West.

(An edited version of this article appeared in South China Morning Post online on 25 September 2013.)