The Renminbi investment surge and its impact on Greater China financial markets and services
China’s growing cluster of currency regulations and the development of financial markets and services related to currency management will be among the most important regulatory and market developments for Greater China in the coming years.
With different currencies in the Chinese Mainland, Hong Kong, Macau, and Taiwan, a series of MOUs and regulations impacting trading and capital accounts is already reshaping the currency boundaries, and with them the financial services landscape of Greater China.
This paper examines a highly critical part of this landscape, recent developments in RMB-based financial services, primarily the RMB investment funds and equity markets. Signal developments include regulatory changes that permit a greatly expanded group of RMB investors and the establishment of new growth from the ChiNext market. These and related developments have potential impact on evolving investment and exit options, on RMB and non-RMB equity markets, on banks and banking services, and on China’s goal to position the RMB for greater international use. Since the global financial crisis, both desire and necessity have brought about a rapid diversification of the RMB-based financial service sector, now pushing notably across China’s internal currency borders. Along with the diversification inside the Mainland, where the RMB remains the nearly exclusive legal currency for investment and settlement, important steps have been taken to project the RMB into an international role, focused first on Greater China and then on the region.
Three interrelated trends are the source of both the challenges and the solutions to the overall future developments in the Mainland’s chains of capital:
- First is the surge in domestic funds, sourcing RMB for pre-IPO investment in Mainland companies and likely seeking exits through A-share IPOs.
- The second is concern over the liquidity of A-share markets and the ability to sustain the high support levels shown so far for a large number of new listings.
- Third are the rapidly accumulating levels of RMB held outside the Mainland, encouraged and enabled by the policy to accelerate an international role for the RMB. This RMB capital, largely held in low-yielding bank deposits, is seeking access to more investment instruments and better returns than presently available.
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Deloitte on AFF 2011 Webcast: Commerce drives China's green growth
Dr. Ken DeWoskin, Director, Deloitte China Research and Insight Centre, talks about how Hong Kong will be a key centre for financial instruments based on the Chinese Mainland's currency, the renminbi, in his recent interview with the Hong Kong Trade Development Council (HKTDC) on 6 December 2010. View video
Read related press release issued by HKTDC.