A bank employee counts Chinese renminbi (RMB) banknotes next to U.S. dollar notes at Kasikornbank in Bangkok, Thailand on January 26, 2023.
By Atit Perawongmetha | Reuters
DALIAN, China — For the Chinese yuan to become more widely used globally, it needs more “applications” such as in stocks and bonds, Hong Kong Exchanges and Clearing Co. Chief Executive Bonnie Chan told a panel on Tuesday.
The Chinese government has long held ambitions to expand the global use of its yuan (also known as the “renminbi” or “RMB”) in international financial markets, where the U.S. dollar is the dominant currency. U.S. sanctions against Russia have also increased pressure on some countries to seek alternative currencies to the U.S. dollar.
Speaking at the World Economic Forum’s Summer Davos meeting in Dalian, China, Chang said people hold currency for trade purposes and, more importantly, as a store of wealth.
“We’re not just going to have a bunch of yuan and put it in a bank account,” she said. “We want to have bonds, stocks, things like that.”
“One of our strategic priorities is [has] “We have changed our policy to continue to increase the number of securities products denominated in yuan,” Chang said. “Investors around the world can really see how they can make more use of the yuan and use them as a way to store wealth in the form of yuan.”
The Hong Kong Stock Exchange last year announced a “dual counter” program that allows investors to trade Hong Kong-listed securities in either Hong Kong dollars or Chinese yuan.
In an important step towards internationalising the renminbi, the International Monetary Fund announced in 2015 that it would add the renminbi to its basket of reserve currencies the following year.
The yuan was the fourth-most active currency by value for cross-border payments in May, accounting for about 4.5% of such transactions, according to SWIFT, an interbank information and communications network. The U.S. dollar’s share was about 48%.
In trade finance, the yuan came in third with about 5.1% of the market in May, according to SWIFT. The euro was slightly higher at 5.6%, while the U.S. dollar dominated with a share of almost 85%.
Fred Fu, founder, chairman and CEO of Primavera Capital, said on the same panel on Tuesday that the internationalization of the yuan will take longer than many expect, despite increasing statements from Beijing.
China is the largest trading nation and has a large financial center, but “it is not as big or deep as the United States,” Hu said. “Moreover, its capital account is closed and not fully fungible. [which] Also, in some way [is] It is hindering the internationalization of the renminbi.”
Developing more yuan-denominated investment products also requires the local financial sector to mature, part of which involves having a more sophisticated investor base.
Zhang said that at the annual Lujiazui Financial Forum in Shanghai last week, the phrase “patient investment” featured in almost every conversation he had with top leaders.
The phrase appeared in official announcements to encourage long-term investment over short-term speculation.
“Patience comes from learning through market fluctuations,” Kenny Lam, CEO of Two Sigma Asia Pacific, said on the same panel on Tuesday.
He said policymakers were taking extra care to make policies more stable and consistent.
Chinese companies have long sought to enter U.S. financial markets in search of prestige and greater market liquidity, but such listings have slowed significantly over the past three years due to increased regulatory scrutiny from both Beijing and Washington, D.C.
“I think IPOs are essential to bringing investors back into the market, and all the talk of IPOs shows that great progress is happening,” Jonathan Klein, founder and CEO of KleinShares, also said on Tuesday’s panel.
“In the U.S., we’re seeing AI and other innovations and companies going public and doing well. And in China, we’re seeing the same innovations happening in the same industries, and those stories should be told through the IPO market,” Crane said, noting that he’s hearing that the IPO market is “starting to recover.”
Chinese authorities last week announced new efforts to support initial public offerings, particularly in Hong Kong.
Chan said the Hong Kong Stock Exchange has received 73 initial listing applications so far this year, up 50 percent from the second half of last year. “The pipeline is building well,” he said, noting that about 110 IPOs are scheduled in total. “All we need is a set of favorable market conditions to allow these IPOs to launch and be properly priced,” he added.
