Offshore With RMB To Get More Access To Shanghai Markets


China will further open its markets in Shanghai to global investors as part of the country’s drive for its RMB Yuan to be used globally for investment, a Shanghai official said.

Most of China’ s financial markets are housed in Shanghai.

Zheng Yang, director of Shanghai’ s financial service office, told a forum in the city Saturday that the city will invite more global investors to in its financial markets as part of an effort to expand investment options for offshore investors holding the Chinese currency, RMB Yuan.

Zheng added that offshore entities could also issue RMB Yuan-denominated products in Shanghai’ s financial markets to broaden the Yuan’ s appeal as an investment currency.

“Opening the domestic financial market to global investors is an integral part of renminbi globalization,” Zheng said. “Only when there are effective channels for offshore investors to invest their Renminbi (RMB Yuan) holdings can the currency be more used globally.”

China has sought to raise the RMB Yuan’s global profile to a level commensurate with the country’ s economic status. It hopes the Yuan will be more used for cross-border trade payment, investment and also as an alternative reserve currency to the USD.

Zheng said the city will use the Shanghai FTZ (free trade zone) to explore opening financial markets’ to global investors. Qualified offshore institutions will be allowed to issue Yuan-denominated bonds in Shanghai, Zheng said. The city will also explore ways to let offshore investors to participate in in China’ s onshore bond market and invest in other financial products.

The Shanghai FTZ launched an international board for global investors to trade contracts using the Chinese currency in September. Yuan-denominated Crude Oil futures are also in the world, with trading expected to be launched later this year.

Shanghai Stock Exchange, China Financial Futures Exchange and also signed a deal last month to establish a joint exchange in Frankfurt to trade RMB Yuan denominated securities and derivatives.

Offshore investors based in Hong Kong have been able buy stocks listed on the Shanghai Stock Exchange since November under the Shanghai-Hong Kong Stock Connect but are subject to a daily quota CNY 13-M and an aggregate quota of CNY 300-B. A similar program linking the stock exchange in Hong Kong and Shenzhen will be launched this year.

The Renminbi is increasingly used in cross-border payments. It is now the world’ s 5th largest payment currency and accounts for 2.18% of payments worldwide, according to SWIFT.

Hong Kong is the largest offshore RMB Yuan center, which has more than CNY1-T in deposit and handles more than 70% of offshore Yuan payments.

Hong Kong’ s legal framework and mature, international market could offer lessons for Shanghai to open its financial market wider to global investors.

China’ s Belt and Road initiatives, which seeks to strengthen ties with countries on the ancient Silk Road trade routes both on land and sea with investment in road, rail, and other infrastructure, could also provide opportunities to use China’ s RMB Yuan for investment.

“Investment projects under the Belt the Road initiatives should try to use more yuan for equity and debt financing,” said Chen Siqing, vice chairman and president of Bank of China (OTCMKT:BACHY).

With China becoming the largest consumer of a number of commodities, it should also seek a stronger pricing power over these commodities using its currency, said Gao Feng, President and Chief Country Officer of Deutsche Bank China (NYSE:DB).

By Song Ming

Paul Ebeling, Editor