Renminbi funds will return to Hong Kong this year or next as China presses on with financial reform, the Hong Kong Economic Journal reported Wednesday.
The Chinese unit is expected to reverse course amid increased efforts to promote free trade, cross-border mutual recognition of funds and opening up of the capital account, said Julien Martin, head of BNP Paribas RMB Competence Center.
This will encourage investors to pile renminbi assets back to Hong Kong and the rest of Asia, he said.
Meanwhile, China has expanded an investment scheme for qualified foreign investors fivefold in the past four years.
Last year, it began allowing foreign investors to tap into its stock market with the launch of Shanghai-Hong Kong Stock Connect, a cross border equity trading platform.
Martin expects the region’s renminbi pool to grow as a result of these developments.
However, renminbi financing is a cause for concern because of the size of renminbi liquidity in Hong Kong.
Recent cuts in the benchmark interest rates by the People’s Bank of China have erased the interest premium of onshore renminbi compared with its offshore counterpart in Hong Kong.
These have prompted companies to switch their fundraising activities to the mainland to take advantage of lower interest rates, Martin said.
However, he said arbitrage activities will not have any material impact on renminbi trading in Hong Kong given actual demand for the Chinese unit.
This article appeared in the Hong Kong Economic Journal on April 8.
Translation by Vey Wong
[Chinese version 中文版]
– Contact ust at [email protected]