VZCZCXRO1951
PP RUEHCN RUEHGH
DE RUEHHK #0266/01 0430703
ZNR UUUUU ZZH
P 120703Z FEB 10
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC PRIORITY 9616
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
INFO RUEHOO/CHINA POSTS COLLECTIVE PRIORITY
UNCLAS SECTION 01 OF 02 HONG KONG 000266
SENSITIVE
SIPDIS
STATE FOR E, EAP/CM AND EEB/IFD/OMA
E.O. 12958: N/A
TAGS: EFIN ECON HK CH
SUBJECT: HONG KONG PUSHES THE OFFSHORE RMB ENVELOPE
REF: A. HONG KONG 212
B. 09 HONG KONG 1667
C. 09 HONG KONG 1280
D. 09 HONG KONG 1104
1. Summary: The Hong Kong Monetary Authority (HKMA) issued
a circular February 11 that effectively simplifies and
expands the use of Renminbi (RMB) in Hong Kong for both
cross-border and domestic transactions. Foreign companies,
including U.S. companies, are explicitly allowed to conduct
trade settlement for both goods and services trade, can
borrow in RMB from authorized Hong Kong banks and even issue
RMB bonds in Hong Kong. Hong Kong banks will no longer need
to verify the eligibility of Mainland counterparties to
conduct cross-border transactions. The volume of RMB
transactions in Hong Kong grew dramatically in December and
January; these "clarifications" should accelerate the use of
RMB in Hong Kong even further. End Summary.
2. (U) The HKMA's February 11 circular "clarified" the
supervisory principles and operational arrangements for RMB
business in Hong Kong. While the HKMA was careful not to
publicize these "clarifications" as expansions of the scope
of RMB use in Hong Kong (going so far as to issue the notice
under the "guidelines" rather than the "press announcements"
section of its website), the practical effect will be to
broaden the number of transactions where RMB can be used and
simplify the use of RMB for banks in Hong Kong. The HKMA
circular allows any authorized financial institution in Hong
Kong to open RMB deposit accounts for any corporate customers
to conduct trade settlement transactions in Hong Kong. This
clarification allows foreign, including U.S., corporations
with Hong Kong bank accounts to settle trade with approved
Mainland counterparts in RMB. They will also be allowed to
use RMB checking and credit card services. It also
effectively expands the scope of RMB trade settlement in Hong
Kong to include trade in services as well as goods.
3. (U) Authorized Hong Kong banks are also allowed to lend
RMB to interested corporate customers. These RMB loans will
no longer be limited just to trade finance for specific
transactions, but can also be used to fund approved projects
in mainland China. RMB bonds, previously limited to selected
financial institutions, will now be an option for all Hong
Kong corporates, subject to their eligibility under Hong
Kong's normal bond issuance regulations. However, they will
not be allowed to directly remit the RMB funds raised back to
China, nor to use the funds to invest in Chinese stocks,
bonds, or property.
=========================================
Simplifying RMB Transactions for HK Banks
=========================================
4. (SBU) Undersecretary for Financial Services and the
Treasury Julia Leung previewed these moves for U.S. officials
on January 27 (ref A). In discussions February 12, she
expected the most important aspect of the HKMA circular was
the announcement that Mainland authorities and banks are
responsible for verifying whether transactions are in
compliance with Mainland regulations. Previously, Hong Kong
banks were required to verify whether Chinese counterparties
were on a list of institutions authorized to conduct
cross-border RMB transactions, a time consuming and often
difficult process. Any RMB transaction involving a Mainland
counterparty can now be assumed to have approval from the
relevant Chinese authorities, said Leung.
==============================
RMB Transactions Growing in HK
==============================
5. (SBU) HKMA External Head Carmen Chu noted that the
circular only clarified approved transactions under the
existing framework and in some areas simply acknowledged
transactions that were already taking place. RMB services
trade settlement had already been taking place in Guangdong
province for several months, she said. In other areas, the
"clarifications" should allow for more rapid development of
cross-border RMB transactions that have accelerated in recent
months. RMB trade settlement got off to a relatively modest
start after its announcement in July 2009 (ref D) and had
resulted in only about RMB 490 million (US$72 million) in
transactions through the end of November. However, December
and January figures showed a sharp increase in cross-border
RMB transactions to RMB 1.3 billion (US$191 million) in
December alone, said Chu. January figures have not yet been
released, but Chu estimated based on available information
that the January number would be even higher.
HONG KONG 00000266 002 OF 002
6. (SBU) Both Chu and Leung noted press speculation that the
Chinese Ministry of Finance was considering issuing another
tranche of RMB-denominated bonds in Hong Kong, following on
the oversubscribed launch of RMB 6 billion in sovereign bonds
in September 2009. While neither was willing to offer a
prediction, both agreed that another Chinese RMB bond
issuance would be a welcome boost for Hong Kong's developing
debt market.
MARUT