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Dim Sum bond flies off menu

Published on Friday, 23 Sep 2011
A sculpture of a blown-up yuan in Beijing reflects the currency’s growing global importance.
Photo: AFP

There's been no shortage of column-space devoted to the so-called arguably undervalued renminbi (RMB) - or yuan - which many observers, feel should be valued at a significantly higher rate. The RMB's value is kept down because it is the currency of a command economy, and Beijing has habitually kept a tight control over its currency flows, to better manage growth and stave off inflation.

But amid pressure building on China to loosen its currency policy, signs of a new mindset are emerging, and the most conspicuous of these in Hong Kong is the fledgling "Dim Sum" bond market.

This is the general term for RMB-denominated bonds issued in Hong Kong, the first offshore market for Chinese currency investments. The bond programme was launched in 2009 and expanded in 2010 to allow for more corporate issuers - and the market has soared ever since.

Now the Dim Sum bonds phenomenon is going international. Beijing has hinted at two more offshore RMB trading centres - London and Singapore. No one doubts that Hong Kong is unrivalled in its role as the premier RMB offshore centre. But who will become number two? Singapore is pitching itself against London for the honours.

"As the only international financial centre in [Southeast Asia], the RMB services in Singapore cover the entire [Southeast Asian] population of over 500 million," Singapore-based Xie Dongming, an analyst at Overseas Chinese Banking Corporation (OCBC), told mainland reporters recently.

"Moreover, Singapore - as the second-largest Asian foreign exchange transaction centre after Tokyo, as well as having an influential global private bank, assets management, and a staple commodity exchange centre - possesses mature foreign exchange experiences and talent resources. This is exactly its advantage in becoming an RMB offshore centre and, in return, expanding RMB trades to the international arena," Xie added.

As early as July 2009, when a pilot plan for the RMB cross-border trade settlement service commenced, Singapore has been angling for greater RMB offshore-market-development action.

But will RMB offshore trading jobs disappear to the Lion City? Xie does not think so. "Before China announced Singapore's position in the RMB offshore market, it was only an attachment to the Hong Kong RMB offshore market. Once China made it public, Singapore began to cooperate rather than compete with Hong Kong in this market," Xie said.

How then is RMB offshore trading affecting the jobs picture in Hong Kong? "Don't forget, HSBC [has just announced a cut of] 3,000 employees in Hong Kong - this is no golden goose," cautions Bert Wang, a commentator and consultant on Greater China economic affairs.

But Wang is upbeat, listing the advantages of this growth area. "Bank customers are flocking to Dim Sum bonds because the RMB is looking so good right now. It has a huge and almost inevitable potential for appreciation, it's being positioned to become one of the world's major trading currencies sooner or later."

All the banks are trying to get a piece of the action. Indeed, jobs will be created in London as well, in the wake of a deal inked earlier this month, which commits the United Kingdom and mainland China to jointly developing products and services denominated in RMB, in order to develop London into another major offshore RMB market.

In a joint statement by Chinese Vice Premier Wang Qishan and the UK's Chancellor of the Exchequer, George Osborne, the representatives said the two governments welcomed the private-sector-led development of London's RMB market, and agreed to monitor and support the market, addressing any risks that might trigger to harm financial stability.

"This dialogue will be supported by a joint collaboration project involving the private sector on the development of RMB-denominated financial products and services in London, including analysis of sources of demand and supply and potential areas for regulatory cooperation," the statement said.

Experts say the same professional skills-sets will be required in all corners of the RMB offshore trading triangle.

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