Transcript
Speaker: Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
Speaker: Make sure you're subscribed to stay up to date with new episodes. Thanks for listening, and now onto today's show.
Speaker: Hello, my name is Andrew k Crook from FinanceAsia. I'm delighted to be here with HSBC's Oliver Kadim, who's head of the Institutional Client Group in Asia, and Veena Chung, Global Head of RMB Internationalization. And we're talking about the evolving usage of RMB from potential to practicality.
Speaker: um Oli, to start off, what's driving the acceleration of RMB usage more recently? Well, good to see you, Andrew and Veena. Pleased to be here, as always. think to answer that question, you really have to look where China trades. And China is now trading, as far as trading partners, over 120 markets globally. So the Remembe use is following that flow of trade, and of which we try to sit in the middle of it, obviously, as the world's number one trade bank. i Remember, internationalisation, which we're going to say a lot today on this podcast, which is hard to say 10 times fast, continues to follow a path of characterised by a combination of progressive liberalisation, infrastructure expansion, such as the Connect schemes, which we've all been involved in and we'll talk about more later, deepening offshore liquidity, such as the five-year China government bond, futures in Hong Kong, and we'll discuss some of the other up-and-coming changes, which the exchange and were announced in July.
Speaker: Thank you. And in what's obviously a volatile current macro environment, where do you currently see the strongest value RMB plays for institutional investors? Good question. and The institutions are incorporating Remembe exposure into their broader toolkit for building more diversified and resilient portfolios. Resilience gets used a lot this year, or certainly since last year. Resilience comes up a lot. Remembe assets can behave differently from US dollar stocks.
Speaker: Euro due to different market cycles helping portfolio resilience and that comes up a lot with our clients. Access to a broader opportunity set such as China's onshore bond market adds depth and variety especially for investors seeking high quality duration and liquidity options. So change is good, correlation or not being correlated to certain markets makes a big difference so we're seeing all of that front and centre when people are deciding whether they now hold RMB.
Speaker: Thank you. Veena, how have clients shifted from using RMB mainly for settlements and investments to embedding it now in day-to-day Treasury? We continue to see the increasing volume of RMB settlements and the clients have shifted to more sophisticated and proactive RMB usage.
Speaker: From currency optimisation standpoint, Treasuries are using RMB position more deliberately, such as holding RMB when it improves the interest funding cost and the liquidity efficiency, and reducing it when it doesn't.
Speaker: So when RMB funding is competitive, clients are using RMB as the low-cost funding source for working capitals and trade-related needs.
Speaker: Increasingly, clients are also treating RMB as a functional liquidity currency, optimizing where the cap sits and mobilizing it for better interest outcomes and reduce the trap liquidity.
Speaker: And I see treasuries and finance operations like kitchens for companies, for institutionals, clients, they are developing RMB products,
Speaker: It's important for them to check if R&B as an ingredient is integrated to the kitchen so that the settlement can be efficient and the business can scale.
Speaker: Thank you. A question to both of you. HSBC recently commissioned Finance it Asia to conduct a survey on RMB internationalisation, future trends and and usage among institutional investors. With that in mind, um how are you seeing evolving trading patterns influence RMB flows and liquidity needs? And what role do offshore RMB centres play in supporting that activity?
Speaker: Great you mentioned that survey and thanks for all your help in putting that together. and The survey was sent out to what over 120 institutions to really get a very short and honest answer on their thought on the RMB and RMB internationalisation.
Speaker: Feedback's been great. It's been sent out to our partners with really, really strong feedback. So thanks again for putting that together. But to answer the question, Veena? Yes. um Our survey points to the strongest RMB link capital flow growth.
Speaker: between China and ASEAN, Asia and Middle East corridors, driven mainly by the expanding global footprint of Chinese mainland business and the broader shift in trade and investment connectivity as well as the supply chain integration.
Speaker: So RMB flow more frequently and operational, not just occasional large value transactions. Offshore hubs enable RemiBee scaling by providing deep liquidity pools, efficient clearing and settlement infrastructure, and risk management tools, helping clients bridge onshore and offshore requirements with stronger operational control.
Speaker: Once again, resilience gets mentioned a lot. Hong Kong remains the key, handing around 75% of global offshore renminbi payments and hosting the deepest offshore renminbi liquidity pool, with renminbi deposits and certificates of deposits exceeding, what's the number in renminbi?
Speaker: Renminbi, one trillion and growing. yes Vina, the survey also shows positive acceptance among institutional investors of digital yuan or ECMY. How do you see institutions benefiting from using it?
Speaker: Yes, it's very encouraging to see 90% of the respondents would consider adopting digital currencies. So digital yuan or ECNY is an emerging payment rail offering potentials for quicker payments and reduced settlement friction, especially important and valuable for cross-border transactions and multi-party workflows.
Speaker: We also see um it complements the traditional payment rails in a broader ecosystem. We have institutional clients tasted the efficiency in some form in the current testing stage.
Speaker: And in a multi-dimensional financial framework, HSBC stands ready to enable tokenized deposit, smart contract, programmable features,
Speaker: for better transparency, simpler integrations and less frictions for settlement certainty. We look forward to expand the use cases with our institutional client.
Speaker: Thank you. I guess to bring this all together, um when a client asks you how should they approach the RMB, whether it's for payments, whether it's for trade, whether it's for investments, what do you tell them?
Speaker: It depends on what type of institutional client I happen to be talking to. I'll start with their portfolio strategy. ah Be clear what role Ruminbi should play within that strategy, whether it's for diversification, risk reduction, access to China's onshore opportunity set. If you want exposure to China's capital markets, look at the Connect schemes. um as a key route to access onshore equities and bonds. And we saw back in July that a number of new policies that are coming in. Raminbi denominated gold futures, that's gonna make a difference. And obviously we the story around Hong Kong being a a hub for gold. Swap Connect, SFC is now in discussion with the PBOC to further enhance Swap Connect. Eligible collateral, acceptance of onshore China government bonds and policy bank bonds held under Northbound Bond Connect as eligible collateral.
Speaker: The other one, electronic bond trading platform. The one I'm most excited about, Southbound Bond Connect. Enhancement of Southbound Bond Connect to include Hong Kong dollar and CNH bond related products. And lastly, strategic cooperation in cross-border renminbi business.
Speaker: MOU between Hong Kong Exchange and the chart and SIPs to explore strategic cooperation in cross-border renminbi business. So once again, out of five or six policies, over but three or four, and blatantly you know turning towards Reminbi.
Speaker: So to answer your question, when we've heard from all of our institutional investors, to believe in the Reminbi story and to make it more and on that internationalisation journey, they need to have liquidity. And I think some of these measures that have been brought in over the last month or so, and will continue with Venus guidance, for HPC to advise our clients on how we can best have access and use Reminbi more.
Speaker: Very exciting time. It really is. So beyond the market assets and infrastructure upgrades that you just mentioned, I see build operational readiness and embed RMB into your invoices, accounts, connectivity, multi-currency structure, risk framework, and accounting practices so that RMB is properly integrated to the treasury setup before you scale.
Speaker: We have seen, you know, um the best approach is that start with a clean and clear use case with treasury objective and expand corridor and corridor. so that RMB adoption is usually seen as a steady integration journey, not a one-time switch built now for a more balanced multi-currency world.
Speaker: Thank you, Veena and Oli. Thanks for your sharing your thoughts and your expertise. and A lot of exciting times ahead for the RMB. Thank you, Andrew. Thank you. Thank you for joining us at HSBC Global Viewpoint.
Speaker: We hope you enjoyed the discussion. Make sure you're subscribed to stay up to date with new episodes.
