Topics in this section: - Greater Bay plans to foster yuan liberalization, Hong Kong role - More yuan products likely for Guangdong companies - Yuan financing for trade should recover - Yuan deposits likely to accumulate on Greater Bay growth
This analysis is by Bloomberg Intelligence senior analyst Francis Chan and contributing analyst Sharnie Wong.
China's Greater Bay Area plans could further strengthen yuan internationalization as the region integrates more with the rest of world. This may solidify Hong Kong's role, with its offshore yuan deposits likely to recover to 1 trillion yuan by 2025. Regulators may offer preferential policy treatment for new yuan products initiated in the area.
More yuan products likely for Guangdong companies
China will likely use the Greater Bay Area to allow international investors to invest in more yuan products through Hong Kong, solidifying the city's role as a financial and offshore yuan-trading center. Offshore investors may be allowed to invest more in securities of Guangdong companies such as Midea and Ping An Bank. Foreign investor qualifications for such securities could also be relaxed. Currently, international investors have access to stocks, bonds, REITs, investment funds and paper gold denominated in yuan, but subject to limits such as trading quotas and yuan-fund pooling.
HSBC, Standard Chartered and Bank of China are among the top banks selling yuan products to personal and institutional clients in Hong Kong. Many products are also sold on the Hong Kong Exchanges.
Yuan financing for trade should recover
Increasing connectivity between Hong Kong and other Greater Bay Area cities will stimulate trade volume, and promote the yuan's use in the payment for goods and services. The currency's share as international payment currency has remained low at 1.1% in December, since the IMF included it in the Special Drawing Rights (SDR) currency basket in 2015. While Hong Kong cleared 79.1% of offshore yuan in 2018, yuan remittance for trade settlement has fallen in amount since 2015.
HSBC, Citigroup, Standard Chartered, ANZ and Bank of China are Asia's top five trade finance banks, based on East & Partners's research. They all provide yuan financing for trade.
Yuan deposits likely to accumulate on Greater Bay growth
Offshore yuan deposits in Hong Kong should pick up from a sharp decline since 2015, thanks to the Greater Bay Area's development. They will reach a trillion yuan again in 2025, we expect, thanks to increasing yuan use across the area. An expanded amount of yuan products in Hong Kong and easier cross-border flows for this pool of yuan liquidity will potentially boost asset yields from offshore deposits. This will induce the lenders to attract more yuan savings in the city. Smoother two-way yuan flow within the region will also narrow the gap of interbank rates in the onshore and offshore markets.
HSBC, its subsidiary Hang Seng and BOC Hong Kong are the biggest yuan deposit banks in Hong Kong. BOCHK is the currency's clearing bank in the city.
