International renminbi update: Luxembourg 1, London 1
London and Luxembourg are at loggerheads to become Europe’s leading offshore renminbi hub – although they wouldn’t let you know it.
As the scrap to become the western offshore renminbi hub of choice trudges along, London might have scrambled to the top of the leader board. The City has made substantial progress already this year, in a very short time.
This year, the Bank of China London branch became the latest bank to issue a renminbi-denominated bond out of the City, the largest of its kind so far at Rmb2.5 billion ($413 million).
Ashmore Group, a London-based emerging market investment manager, was awarded the first RQFII licence out of London on January 7, the first investor outside Hong Kong to get an RQFII licence.
A mere two days later, CSOP, a Hong Kong-based asset management company, became the first renminbi exchange-traded fund listed on the London Stock Exchange, debuting with more than $230 million in assets after strong pre-IPO demand from investors.
But London cannot remain complacent. Luxembourg – its closest and fiercest competitor for the accolade – won’t be giving up its top position any time soon.
Luxembourg has the largest amount of renminbis in the eurozone, with Rmb56 billion in deposits, Rmb67.2 billion in loans, Rmb24.5 billion in renminbi-denominated bond listings and over Rmb228 billion of assets in mutual funds. In fact, it remains the only country in Europe with renminbi-denominated mutual funds. Some of China’s biggest banks, including ICBC, Bank of China and China Construction Bank, have their regional headquarters in Luxembourg.
Policymakers and bankers in London remain adamant that the competition with Luxembourg is more like cooperation, not competition at all. They are all working towards the same end: the internationalization of the RMB.
It was a recent turnaround in policy issues in the City that suggests the competition is much more real than that. In the space of a year, pressure on London to allow Chinese bank branches (and other foreign banks for that matter) to open in the City was successful. Even a currency swap, which was completely off the cards at one point, was implemented for Rmb200 billion, deepening London’s relationship with Beijing even further.
And although the City might not admit it, these measures were revised as Luxembourg stole a march in the race to become Europe’s offshore renminbi hub. Without these shrewd decisions and revised measures, London would no doubt be falling behind its main competitor.
Luxembourg is forcing London to catch up. If things carry on the way they are, Luxembourg might soon be pushed off the top spot – a change that is already gathering momentum. Competition, not cooperation, between the financial centres is spurring on the internationalization of the renminbi. The competition continues. And this is a good thing.