Stuart Fraser, the policy chairman of the City of London, will spend seven days in Shanghai and Beijing this week (May 18-25) lobbying the People’s Bank of China to let the British capital become the next offshore renminbi centre.
“Renminbi is going to be a major global currency. We’d like to see how the London financial centre can assist in its internationalisation,” Fraser told Asiamoney PLUS in an exclusive interview on May 13, ahead of his trip.
“London is the natural place to be. It has all the expertise to facilitate currency trading and clearing on a global basis,” he added.
The growth potential of renminbi is large. Almost 7% of China’s international trade was settled in renminbi in the first quarter of this year, up from almost zero two years ago.
This suggests the pace of renminbi internationalisation is gaining traction; and allowing more financial hubs to become offshore renminbi centers in the medium term would facilitate more trades to be conducted in renminbi, and promote a quicker internationalisation of the currency.
Given that renminbi deposit growth is currently driven mainly by trade settlement and London is Europe’s leading financial centre, it makes sense for Beijing to offer it offshore renminbi status.
London has consistently expressed its strong interest in offshore renminbi business, although the discussions have so far been preliminary and it remains unclear when China would allow another offshore renminbi hub.
Fraser believes the additions of a few more offshore hubs would quicken the pace of renminbi internationalisation.
“[The additions of] London, New York or even Dubai and Singapore would facilitate trades in renminbi across different time zones,” he said.
Before Fraser’s visit, Alderman Bear, the lord mayor of the City of London, also revealed the City’s ambitions in renminbi business during a trip to Shanghai in April.
The city has been forging closer economic ties with Beijing over the past few years and many UK business organisations have set up shops in China, even as mainland firms have established branches in London to build a foothold in Europe.
In the last two years alone eight leading Chinese banks have set up branches in the Square Mile in London. These include the Agricultural Bank of China, Bank of China, Bank of Communications, China Construction Bank, Industrial & Commercial Bank of China, and China International Capital Corp.
At present, Hong Kong is the only financial centre with a renminbi settlement bank outside China. Bank of China (Hong Kong) undertakes the renminbi settlements in the former British colony.
However there are signs that its unique status is set to end very soon. Earlier on April 19, Singapore’s Business Times quoted Goh Chok Tong, the country’s former prime minister and current chairman of the Monetary Authority of Singapore, as saying that the PBoC would soon appoint a Chinese bank in Singapore to handle the clearing of renminbi trades.
Additionally, China seems keen to attract more international business ties. The Shanghai Stock Exchange is preparing to launch an international board which aims at attracting the world’s top 500 companies to float their shares. HSBC and Standard Chartered both have already listed in Hong Kong and London.
It is widely expected the Chinese regulator, China Securities Regulatory Commission (CSRC), may allow about 10 foreign firms such as HSBC and Unilever, in the first batch of listings on the international board.
During his trip, Fraser intends to meet Zhang Yujun, president of Shanghai Stock Exchange, to discuss the prospects of listing the UK companies on the bourse’s upcoming international board.
“HSBC and Standard Chartered Bank so far have expressed interest in listing shares in Shanghai. I will make a case and help lobbying for them,” he said.
The City of London is the municipal governing body of the London financial centre. One of its major responsibilities is to promote The City as the world leader in international finance and business services. Fraser’s role as the policy chairman oversees and co-ordinates the policy direction of the City of London.