Regulating the renminbi
Since February 2004, licensed banks in Hong Kong have been allowed to offer personal RMB services such as deposit accounts, currency exchange, remittance services and credit cards to individuals with a Hong Kong identity card. At that time, participating licensed banks were also allowed to provide a service converting RMB into HKD for designated business customers (DBCs). In December 2005, the rules were further relaxed to allow DBCs to open RMB deposit accounts. The definition of which companies qualified as DBCs was also widened to encompass a wider range of firms. Individual customers also benefited from the relaxation in rules, particularly because Hong Kong identity card holders were able to open RMB current accounts to facilitate payment of purchases made in the Guangdong province using cheques. Today, the daily conversion limit is RMB20,000 per person and the daily remittance limit is RMB80,000 per person.
Since June 2007, mainland financial institutions have been allowed to issue RMB bonds in Hong Kong, subject to the approval of the Chinese authorities. China Development Bank issued the first offshore RMB bonds in Hong Kong. Later in 2010, Hopewell Highway became the first Hong Kong corporation and McDonald’s the first foreign corporation to issue RMB bonds in Hong Kong.
Under a pilot scheme in July 2009, cross-border trades between companies in Shanghai, four cities in the Guangdong province and Hong Kong, Macau and the Association of South East Asian Nations (ASEAN) were allowed to be settled in RMB. This scheme was further expanded in June 2010 to 20 provinces and municipalities in China, covering their trade transactions with any part of the world. On December 6, 2010, the rules were relaxed once again – the list of mainland enterprises able to settle merchandise exports in RMB and eligible to participate in the cross-border RMB trade settlement scheme was significantly expanded from 365 to 67,359. Hong Kong is well-positioned to serve the greater scope of RMB trade settlement and related financial activities with an established RMB financial infrastructure and unique clearing arrangement.
According to the Clearing Agreement amendments of 2010, participating authorised institutions (AIs) can open RMB accounts for any corporate customer. There are no restrictions on RMB conversion for corporate customers, but banks can only square open positions from cross-border trades with the clearing bank. At the same time, banks can square any RMB open position with other participating AIs. There are no restrictions on RMB transfers between different customers, whether within the same AI or not. There are also no restrictions on the extension of RMB loans to corporate customers. However, RMB lending to personal and DBCs is not permitted. RMB deposits may be used as collateral for foreign currency loans. In the latest Hong Kong Monetary Authority (HKMA) circular, issued on December 23, 2010, there are certain refinements to the arrangement for conversions of RMB conducted by participating AIs with their customers for RMB cross-border trade settlement transactions. Participating AIs are also required to limit RMB net open positions – net long or net short – to 10% of RMB assets or liabilities.
Foreign central banks and participating AIs may invest in the onshore interbank bond market, subject to People’s Bank of China (PBOC) approval. This may increase the offshore RMB interbank money market liquidity and the offshore RMB funding rate, hence facilitating the development of wealth management products.
As per the PBOC circular number 249 (dated August 31, 2010), any foreign company – including those in Hong Kong, Taiwan or Macau – that is legally incorporated is eligible to apply for an open RMB non-resident account (NRA) with any bank in China, as long as the company has RMB settlement requirements. The account need not be used solely for trade-related reasons, and its opening is subject to PBOC’s case-by-case approval. DBS China is able to help foreign companies interested in opening a Chinese yuan NRA to facilitate business activities using yuan as a settlement currency.
To further enhance the circulation of RMB funds, on January 6, 2011 the PBOC announced a pilot scheme for the settlement of overseas direct investments in RMB – called the Pilot Scheme. Under the Pilot Scheme, mainland enterprises can conduct direct investments abroad using RMB, upon approval by the relevant mainland authorities. Moreover, the Hong Kong branches and correspondent banks of mainland banks can obtain RMB funds from the mainland and extend RMB lending to the enterprises conducting the investments.