The internationalization of China’s currency has sparked off something of a gold rush in global financial markets. The march of the renminbi is picking up pace and western banks are lining up to capture their share of the spoils. But they are not alone. The renminbi’s push into the wider world has brought with it ambitious Chinese banks, determined not to leave the bulk of the business to their western counterparts.
HSBC has recently been on a media charm offensive to push its RMB credentials, and on the face of it, its credentials are pretty good. It is both the oldest and largest foreign bank in China, says David Pavitt, HSBC’s head of RMB business development for markets in EMEA. But despite the grandiose history of HSBC in China, Pavitt is very much aware of the fierce competition that is already pervading this fledgling market.
“The Chinese banks are increasing the size of their operations in London,” says Pavitt. “Yes, it will be a much more competitive landscape, but the number of players in the market is going to increase more because of Chinese banks increasing their presence in these offshore centres.”
As the market is in its infancy, the banks are mostly still sizing each other up as they all add to their RMB infrastructure and pitch feverishly for new business. Everyone knows the big prizes are still up for grabs and that jockeying for early position is all-important.
Standard Chartered is another bank pushing its case for RMB business hard as the currency internationalises. Jinny Yan, director, RMB solutions, corporate and institutional clients, Europe, highlights the differences in the competitive landscapes inside and outside China.
“In my view, how you should look at it is: in China we can't compete with the local Chinese banks in terms of market size,” says Yan. “Here in Europe, I believe the Chinese banks will have a similar challenge. However, our advantage is our global network, allowing us to serve our clients in all our footprint countries.
“The majority of our client base who are interested in RMB products will be multinational corporations with operations in China, where we have a long history. The large Chinese banks' main purpose is to serve the Chinese economy, so they are mainly serving Chinese corporates that come into Europe.”
Standard Chartered keeps a close eye on the figures around RMB business, according to Yan, looking at areas such as volume of deposits, trade settlements, FX turnover and dim sum bonds issued in the five offshore RMB centres, Hong Kong, Singapore, Taiwan, London and New York, that are tracked in the bank’s RMB globalization index.
“Each geographical centre will play an important role based on their areas of strength,” she adds. “Hong Kong covers all four. London has a niche in FX turnover and dim sum bond issuance to some extent; Germany and France have higher volumes of trade with China; while Luxembourg plays a role as one of the biggest wealth fund centres.”
The competition between western and Chinese banks as well as among the different financial centres competing for the business is only set to heat up as China continues with its currency reforms. And for anyone still wondering where the process is going to end, it’s worth listening to some final words of wisdom from HSBC's Pavitt: “There’s a Chinese saying: crossing the river by feeling the stones. The Chinese are gradually moving towards a fully convertible and free-floating currency.”