HONG KONG, Dec. 21 (Xinhua) -- The exchange rate of the Chinese currency yuan, or Renminbi, against the U.S. dollar has been fluctuating recently quite out of market expectations, while the offshore RMB exchange rate has also been volatile, turning to discount from premium compared with the onshore exchange rate.
Financial officials and analysts in Hong Kong said the development of Hong Kong's offshore RMB market is determined by supply and demand and the two-way fluctuation highlights a gradually mature market.
On the other hand, the offshore exchange rate fluctuation hasn' t affected the onshore one very much, nor resulted in any big turbulence, a sign that Hong Kong as an offshore market for RMB business is heading to a better development.
Since Hong Kong started offshore RMB business in early 2004, the fluctuation range of both RMB onshore and offshore exchange rates has been within 2 percent, taking both premium and discount into account.
Executive Director of the Hang Seng Bank Andrew Fung said Hong Kong's offshore RMB business couldn't achieve normal development if the investment is only based on the expectation of RMB appreciation.
"From now on, if the RMB exchange rate is more stable with a slower pace of the RMB appreciation, there will be more issuers willing to sell RMB bonds," he said.
Fung said the premium or discount in the offshore RMB exchange rate has increased the overseas issuers' interest in the RMB- denominated products.
Early this month, Telmex, a Mexican telecom company, announced its plan to issue 500 million yuan (78.7 million U.S. dollars) of bonds in Hong Kong, for purchasing facilities from a technology company in the Chinese mainland, gaining breakthrough progress in the Latin America financial system.
In the first 10 months of this year, 78 entities issued some 100 billion yuan worth of RMB-denominated bonds, dubbed as "dim sum" bonds, official data showed. The figure for the entire 2010 was about 36 billion yuan.
Fung said the scale of RMB bonds in Hong Kong's offshore market is almost close to the U.S.-dollar bond in Asia ex-Japan, and Hong Kong's offshore market is developing in the right direction.
Secretary for Financial Services and the Treasury of the Hong Kong government, K C Chan, told Xinhua that Hong Kong has achieved significant progress in both growing offshore RMB business and bringing related policies forward in 2011.
Since the establishment of the offshore deliverable RMB market in Hong Kong in July 2010 when the Mainland and Hong Kong signed a revised Settlement Agreement on the Clearing of RMB Businesses, the policies had been successfully implemented, and many market participants in Hong Kong didn't expect such rapid growth, Chan said.
Analysts also said recent deprecation of RMB is only temporary, and in the long run, the market will reestablish the expectation to the currency's appreciation.
Nevertheless, they said the depreciation of RMB in the short term may weaken the companies' desire to hold RMB assets, but it won't affect the progress of RMB internationalization as well as Hong Kong's development as an offshore RMB center.
Liao Qun, chief analyst of the China business with CITIC Bank International, told Xinhua that internationalization of RMB and other related business in the offshore market have little correlation with whether the currency is appreciating or depreciating, but based on the actual demands, among which, demand from corporations is the biggest driving force for cross-border trade settled in RMB.
Liao said the volume of trade settled in RMB in Hong Kong has expanded rapidly since the RMB trade settlement pilot scheme was expanded to 20 provincial-level regions in 2010.
In the first nine months of this year, the mainland's foreign trade, which was settled in RMB and handled by banks in Hong Kong, amounted to about 1.5 trillion yuan, almost 4 times of the 400 billion yuan in the full year of 2010. Hong Kong's role as the global RMB settlement center has been further strengthened.
Other than the expansion of the volume of trade settled in RMB, the RMB deposits in Hong Kong have also increased vastly. The total amount of Hong Kong's RMB deposits reached 620 billion yuan as of the end of October, 2011, doubling from the 300 billion yuan as of the end of 2010.
The high liquidity of RMB provides advantages for Hong Kong to develop the RMB financial products, such as bonds and stocks.
The scale of the volume of trade settled in RMB, RMB deposits and RMB bonds in Hong Kong all recorded substantial growth in 2011, and Hong Kong's desire to develop itself into an offshore RMB business center has gradually gained momentum.
Officials and analysts also said the biggest surprise for this year is a number of supportive policies introduced by the central government, echoing market's expectation.
At a forum held on Aug. 17 in Hong Kong on the nations' 12th Five-Year Program (2011-2015) and cooperation between the mainland and Hong Kong, Vice Premier Li Keqiang announced a series of measures to support Hong Kong's economic and social development, and as many as eight measures were for the offshore RMB business.
Under the support of the central government and the Hong Kong government, six of the eight measures have been implemented successively in the past four months, including the approval of RMB Foreign Direct Investment scheme, the RMB Qualified Foreign Institutional Investors (RQFIIs) and the expansion of cross-border trade RMB settlement scheme to the entire mainland.
The RQFII allows Hong Kong's designated institutions to invest in the mainland security market with an initial size of 20 billion yuan.
And since the announcement of the supportive policies, altogether 74 cross-border RMB direct investment projects were approved, with a total investment of 16.53 billion yuan and 70 percent of the capital coming from Hong Kong.
The People's Bank of China, the nation's central bank, has said it will continue to push forward with the rest two policies as long-term goals.
K C Chan said both the RMB FDI and RQFII will be helpful to improve what he called "inner circulation" of the RMB capital, which referred to the flow between Hong Kong offshore market and the mainland onshore market.
Only if RMB-denominated capital and portfolio are allowed to invest in the mainland, can overseas demand for RMB increase, can investors' willingness to retain RMB assets become stronger and can Hong Kong's RMB deposits be put into the market and flow, Chan said.
Financial Secretary of the Hong Kong government John Tsang also said the implementations of these measures will speed up the establishment of the offshore RMB business center in Hong Kong, as well as the internationalization of RMB. (1 U.S. dollar equals 6. 34 yuan)