HSBC yesterday held a bond auction denominated in the Chinese renminbi currency (RMB) in London. This was not only the first such auction in the city, but the first one to be held anywhere other than China or Hong Kong, and the bank hopes that it will be a step forward in the development of Britain as a centre of the international trade in renminbi.
The three year renminbi bonds which were sold are known as "dim sum" bonds, and the bank sold RMB 2bn - just under £200m. The sale was timed to occur with the launch of a new working group, backed by Bank of China, Barclays, Deutsche Bank, HSBC and Standard Chartered, which aims to internationalise China's currency and consolidate London's role in the trade. The city currently holds 26 per cent of the offshore foreign exchange renminbi market, and holds RMB 109bn deposits. This remains a fraction of Hong Kong's RMB 566bn holdings, but London is only fighting for second place in the market, with Singapore its biggest potential rival.
Jean-Marc Mercier, HSBC's global head of debt syndication, told the Financial Times that :
The bank, which had originally planned to raise over RMB 1bn, had been pleasantly surprised by the strength of demand from European investors, including fund managers, private banks and institutions.
He indicated that European investors were taking up about 60 per cent of the issue, with most of the remaining 40 per cent going to Asia.
The fact that the bond raised around twice what it was expected to on a return of 3 per cent indicates that investors are still keen to buy in to China, and the bank revealed that 60 per cent of the activity had come from European traders.
The Chancellor was present at the renminbi working group's launch, and said:
Let me be clear – London is not in competition with Hong Kong, it is a complement – providing a Western hub for RMB business.
These developments are the culmination of a team effort by global banks with operations in London and Hong Kong, strongly supported by the UK, mainland Chinese and Hong Kong Authorities. . .
London has a long history of global financial inventiveness - from founding the first organised market for insurance for trading around the world hundreds of years ago, to the development of the Eurodollar markets through the 1960s, 70s and 80s, and global foreign equities trading in more recent times.
RMB trading is the next step along a 400 year road.
The white elephant in the room is the fact that London, and any other potential foreign renminbi centre, is being heavily reined in by Beijing. China has only recently come to accept the possibility that the renminbi could be an international reserve currency, and is still maintaingin strict controls - although these are slowly being liberalised. On Monday, the People's Bank of China widened the trading band of the renminbi by 0.5 per cent to 1 per cent, allowing it to fluctuate slightly more against the dollar, which it remains pegged to.