The RMB Offshore Market Is Hot &Nbsp; Hot Money Control Is A Dilemma.

With the continuous deregulation of the central government, the RMB offshore market in Hongkong has expanded and deepened in the past two years, showing a hot scene.

The international investment bank Nomura said in a recent report that Hongkong's promotion of the construction of the offshore RMB center will help improve the status of Hongkong's international financial center. But Nomura also said that the central government will introduce measures to curb the rapid growth of RMB deposits in Hongkong, in view of fears that Hongkong's rapid growth in renminbi may weaken the mainland's control over capital and reduce Hongkong's confidence in Hong Kong dollar.

However, Nomura also believes that because the long-term goal of the central government is to achieve RMB internationalization, unless the flow of funds is really serious enough to cause serious problems, there will be no measures to limit the convertibility of the renminbi.

Over the past two years, the offshore renminbi market in Hongkong has been booming.

RMB deposits in Hongkong have seen explosive growth since the second half of 2010.

According to the HKMA data, as of the end of March this year, the total amount of RMB deposits in Hongkong amounted to 451 billion 419 million yuan, up 6.4 times compared with the same period last year.

At present, RMB deposits in Hongkong from mainland RMB funds are mainly obtained through four channels: RMB.

By the end of March this year, the total amount of Hongkong's cross border trade related payments has reached 115 billion 447 million yuan.

In addition, the RMB denominated financial products market in Hongkong has expanded rapidly over the past two years. At present, more than 40 RMB bonds are issued in Hong Kong. According to Bloomberg and Nomura global economic data, as of April 21st, the total amount of RMB Offshore bonds issued in Hongkong (also known as "dim sum bonds") in Hongkong this year amounted to 21 billion 600 million yuan, and 35 billion 800 million yuan was issued last year.

From 2007 to date, the total amount of RMB Offshore bonds issued by Hongkong in the past 4 years was 95 billion 400 million yuan.

In addition, in December 2010, the first Renminbi synthetic bond was published in Hongkong, which was denominated in Renminbi but settled in US dollars.

By financing such products, distributors can freely repatriate their income to the mainland, while the publishers of dim sum bonds need permission from the authorities to return the funds to the mainland.

In addition, the first Renminbi denominated stock Huixian housing was released in Hong Kong in April this year.

Or two hidden worries

While Hongkong's offshore renminbi market is booming, Nomura also believes that

The first worry comes from the central government. The rapid growth of Renminbi products will lead to more hot money flowing into China. Nomura believes that the growth of Renminbi deposits in Hongkong is related to capital growth flowing into the mainland, while the central government wants to control the money supply and curb inflation.

The second worry comes from the Hongkong SAR government. The rapid growth of RMB deposits may weaken Hongkong residents' confidence in Hong Kong dollar. In March this year, the proportion of RMB deposits in Hong Kong dollar deposits increased from 2.1% at the end of 2009 to 14.9%.

Nomura said he believed that in April this year, the people's Bank of China decided to reduce the interest rate on Renminbi deposits paid to Hongkong bank in order to slow down the growth of Renminbi deposits, and it is expected that relevant government agencies will adopt relevant measures in the medium term to slow down the growth of Renminbi deposits.

In April 12th this year, the Bank of China's offshore RMB clearing bank, Bank of China, announced that the central bank gave the clearing bank RMB clearing interest rate from 0.99 yuan to 0.72 percentage points, down 27 basis points, and the interest rate of Bank of China in Hongkong was reduced from 0.865 to 0.629 points in Hongkong.

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Nomura pointed out in August last year that the explosive growth of RMB usage may trigger tightening policy, which is due to a potential conflict between Hongkong's fast-growing Renminbi stock and mainland capital controls, or weakening the control of capital in the mainland.

Nomura pointed out that because the monetary system of Hongkong is not controlled by capital, there will be a large amount of capital flowing to the mainland, and once the central government thinks that the capital flowing to Hongkong through the mainland will reach a considerable scale, relevant measures will be taken to restrict it.

However, Nomura also believes that unless the flow of funds is really serious enough to cause serious problems, there will be no restrictive measures.