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China’s yuan, RMB internationalization needs more applications: HKEX CEO

A bank employee counts Chinese renminbi (RMB) or yuan notes next to U.S. dollar notes at a Kasikornbank in Bangkok, Thailand, January 26, 2023.

Athit Perawongmetha | Reuters

DALIAN, China — For China yuan To be used globally, the currency needs more “applications”, such as for stocks and bonds, Bonnie Chan, CEO of Hong Kong Exchanges and Clearing Limited, said during a panel on Tuesday.

Beijing has long touted its ambitions to increase the global use of the Chinese yuan – also known as the “renminbi” or “RMB” – in an international financial market where the US Dollar is the dominant currency. US sanctions against Russia have also increased pressure on some countries to offer alternatives to the greenback.

Chan, speaking at the World Economic Forum’s “Summer Davos” meeting in Dalian, China, emphasized that people hold currency for trade or, more importantly, as a store of wealth.

“We’re not just going to keep a sum of RMB and put it in this bank account,” she said. “You want bonds, you want stocks, etc.”

“One of our strategic imperatives (has) changed to ensure that we continue to produce more RMB-denominated security products,” Chan said, “so that investors around the world can actually see more applications of the RMB and be able to use RMB”. these are the means of storing wealth in the form of RMB. »

HKEX CEO aims for more large-scale IPOs this year

Last year, the Hong Kong Stock Exchange announced a “Dual-Counter” program that allows investors to trade Hong Kong-listed securities in Hong Kong dollars or Chinese yuan.

In an important step toward the internationalization of the yuan, the International Monetary Fund announced in 2015 that it would add the yuan to its basket of reserve currencies the following year.

The yuan was the fourth most active currency for global payments by value in May, accounting for nearly 4.5% of such transactions, according to interbank messaging network SWIFT. The US dollar accounted for almost 48%.

In trade finance, the yuan ranked third with around 5.1% in May, according to SWIFT. THE euro was slightly higher at 5.6%, while the US dollar dominated with a share of almost 85%, the data showed.

Fred Hu, founder, chairman and CEO of Primavera Capital, told the same panel on Tuesday that internationalization of the yuan was likely to take longer than expected, despite the growing number of statements from Beijing.

Although China is the largest trading nation and has major financial centers, “we are not as big or as deep as the United States,” Hu said. “In addition, our capital account is also closed, it is not fully convertible, (which) also in some way hinders the internationalization of the renminbi.”

A fully maturing financial market

Developing more Chinese yuan-denominated investment products also requires a maturation of the local financial sector. Part of that means having a more sophisticated investor base.

Chan said that at the Lujiazui Annual Financial Forum in Shanghai last week, almost every conversation with top executives included the term “patient investment.”

The phrase appeared in official communiqués to encourage long-term investment rather than short-term speculation.

“Patience comes from learning through market volatility,” Kenny Lam, CEO of Two Sigma Asia-Pacific, said on the same panel on Tuesday.

He said policymakers were thinking more about making their policies more stable and consistent.

Waiting for more Chinese IPOs

Chinese companies have long sought to exploit U.S. financial markets for the prestige and greater market liquidity they offer, but increased regulatory oversight from Beijing and Washington, D.C., has significantly slowed these listings over the of the last three years.

“I think IPOs are key to getting investors back into the market. All the stories around them show that there’s a lot of progress happening,” Jonathan Krane, founder and CEO of KraneShares, also said. , during the panel on Tuesday.

“In the United States we see all this innovation, AI and all these companies going public and succeeding, and then in China the same industry, the same innovations are happening and these stories should be told through the IPO market. stock market,” Krane said, noting that he hears the IPO market “is going to start coming back.”

Chinese authorities last week announced new efforts to support IPOs, particularly in Hong Kong.

Chan said that so far this year, the Hong Kong stock exchange had received 73 new listing applications, an increase of 50% from the second half of last year, she said. “The pipeline is growing well,” she said, noting that about 110 IPOs in total were in the works. “All we need is a set of good market conditions so that these products can be launched and priced well,” she added.

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