By Leo Zhang
European companies and institutional investors with an interest in China said they welcome the launch of renminbi-denominated products and services in London, according to a report unveiled on June 25 by the City of London Corp.
The report, Corporate and Investor Perspectives on London Renminbi Business, was the second report by the City of London on the RMB initiative after the city set a goal of becoming a centre for yuan business. The first report, London: A Centre for Renminbi Business, was published in April.
The new report examined the experiences of European firms using RMB for payments and investments. Research was conducted by trusted sources and involved semi-structured in epth interviews with eight corporates and ten institutional investors that trade with or invest in China.
According to the survey, RMB products and services now available in London are able to meet the demand of companies and investors. Adopting the RMB in cross-border trade settlements with China can bring corporate customers key benefits including cost-effectiveness and efficiency, according to the report.
Mark Boleat, Policy Chairman at the City of London Corporation, said in a press release that London is already developing as a centre for RMB business, and its attractiveness is underpinned by key strengths such as its time zone, strong regulatory framework, banking expertise and global foreign-exchange trading volumes that are well recognized by corporates and investors.
he usage of RMB outside China has grown significantly in recent years - helping it to climb up the ladder towards becoming a world payments currency. Understanding the perspectives of current and potential users of RMB products and services will help to develop the services offered to these firms, grow the liquidity pool in London and contribute to the international use of the RMB outside mainland China, said Mr. Boleat in the press release.
Using RMB products and services allows European companies to settle transactions, inject capital into their onshore operations and to repatriate their earnings. However, it is still early days for investment products such as Dim Sum bonds (yuan-denominated bonds sold overseas) among European investors. In addition, the report also showed that some investors have expressed caution on liquidity and market depth in London renminbi market.
As of the end of last year, there were 109 billion yuan (US$17.15 billion) worth of deposits in London, while the city represented 26 percent of the offshore yuan spot foreign exchange market. However, most of the activity is still based in Hong Kong.
Stephen Xue, a Bank of China trader, said that London may need some time to catch up with Hong Kong in terms of market size and liquidity.
ondon advantages lie in its forex market, its long history and its abundance of established financial institutions, Xue said. ut as for yuan business, many of my clients still prefer Hong Kong. I think London must boost its relations with both mainland authorities and investors so as to grow more quickly. br />
Speaking at the high-profile Lujiazui Forum held in Shanghai in late June, Mr. Boleat showed his willingness and desire for cooperation. here will be more cooperation between Shanghai and the City of London - we already have a significant amount of cooperation. The more (Shanghai) develops, the closer the links will be," he told Chinese financial regulators and senior corporate executives at the forum.
Boleat, who joined the City of London Corp in May, also said he was committed to strengthening the British capital's newfound status as an offshore trading hub for the yuan, a move announced by Chancellor George Osborne in January.
"We are not looking to compete with Hong Kong," Boleat said, adding that the opening-up of the Shanghai Stock Exchange to foreign companies would be a "critical" factor in the city's progress.
