HK losing ground in yuan payments
City’s share of global yuan payments at 72pc last month from 85pc in 2012
Hong Kong’s market share in the global yuan business has been shrinking rapidly over the past two years, with other offshore yuan centres turning up the heat on the city as Beijing allows foreign financial centres to dabble in the business.
The city’s share of the global yuan payments business shrunk from 85 per cent in December 2012 to 72 per cent last month, according to a SWIFT report released yesterday.
Hong Kong was the first offshore city backed by Beijing for cross-border trades as early as 2009, with all cross-border yuan payments going through the city’s yuan clearing bank, Bank of China Hong Kong, in the initial years.
The landscape began changing after more international cities were allowed to begin operating yuan clearing banks and other yuan facilities.
China’s shift to support multiple centres of yuan business across the globe from the original Hong Kong-centric system picked up pace in 2012.
Among its competitors, Singapore appears to be the biggest threat to Hong Kong. The city-state is now the biggest offshore yuan hub outside the mainland and Hong Kong, with a 6.17 per cent market share. It surpassed London last July.
Hong Kong might lose more market share in the future to the mainland itself as the onshore capital market opens up further to foreign capital amid a series of financial reforms in foreign exchange and interest rates.
Yuan payments between the mainland and the rest of the world account for 3 per cent of the total globally and market watchers expect it to rise as reforms pick up.
“It is not a surprise to me at all. When you have more competitors, Hong Kong’s share will decrease naturally,” said Nathan Chow, a Hong Kong-based economist at DBS.
“Yet what Hong Kong should really be alert to is that the mainland will eventually open up its capital account and do more business on its own [directly with offshore centres]. Thus the real competition among the offshore hubs in the future lies in the race for third-party yuan business,” he said.
Yuan as the currency of global payments fell by value for the second month in February, dropping from fifth position to seventh, after the US dollar, euro, British pound, Japanese yen, Swiss franc and Canadian dollar. It accounted for 1.81 per cent of the world’s total last month, compared with a peak of 2.17 per cent in December.
“It’s still a long journey for yuan to be fully convertible,” Chow said. “Yet when that day comes, Hong Kong will continue to be a meaningful offshore centre with strength in conducting third-party yuan business, such as dim sum bond issuances for foreign issuers and facilitating business between trading partners outside China.”
