The RMB Internationalisation Paris, a hub for Europe
November 2012
Table of Contents
Foreword...... 7
Glossary...... 9
Executive Summary...... 11
Part I: The Emergence of a New “Settlement Currency”...... 17
I. The private sector and the RMB internationalisation ...... 18
1.1. The Trade Settlement Scheme...... 18
A. An irreversible trend?...... 18 a. Such initiative is part of a more global China FX deregulation trend...... 18 b. An exponential acceleration of cross-border RMB trade settlements...... 19 c. Cross-border trade settlements still effected mainly in Hong Kong...... 20 d. The acceleration of RMB cross-border trade settlements offers new opportunities (and new challenges) for the Eurozone trade relationship with China ...... 20 e. The use of RMB by overseas corporate and financial institutions...... 22
B. A strict control of the offshore RMB liquidity by PBoC...... 24 a. The RMB offshore liquidity is mainly in Hong Kong...... 24 b. The PBoC strict control of the Hong Kong offshore RMB liquidity...... 24 c. The cross-border RMB payment system: operational challenges still exist...... 25
1.2. From an offshore pool of liquidity to an emerging international capital market...... 26
A. RMB bonds issued from Hong Kong (and so far marginally, from other financial centres)...... 26 a. A flexible legal environment...... 26 b. A controlled legal environment...... 26 c. Trends in the offshore RMB bond market issuance...... 27
B. The offshore RMB CD market...... 31
C. The loan market...... 32
1.3. Onshore RMB (equities and bonds) accessible to offshore investors...... 33
A. Qualified Foreign Institutional Investors (QFII)...... 33
B. RMB Qualified Foreign Institutional Investors (RQFII)...... 33
II. The Public Sector and the RMB Internationalisation...... 34 Part II: Paris and the RMB Internationalisation...... 37
I. The Paris Contribution to the RMB trade settlement scheme...... 39
1.1 The SWIFT RMB data...... 39
A. RMB as a global payment currency...... 39
B. RMB transactions...... 39
1.2 French RMB trade settlement and RMB deposits...... 40
A. French RMB trade settlements...... 40
B. RMB deposits with Paris banks...... 40
II. The Paris RMB financial services offer...... 40
2.1 Account services...... 41
2.2 RMB cross-border funds transfer...... 41
2.3 Foreign exchange and time zone...... 42
III. French Issuers and the RMB debt capital markets...... 44
3.1 French corporates are among the most active European issuers...... 44
A. European issuers...... 44
B. An important number of potential new French issuers...... 44
C. Listing and depository system...... 45
D. The use of proceeds: illustration...... 45
3.2 The Paris offshore RMB loan market...... 47
IV. Paris and the new emerging RMB financial centres...... 47
4.1 Criteria for a RMB financial centre...... 47
4.2 The emerging RMB financial centres...... 48
A. Taipei...... 48
B. Singapore...... 49 Part III: The Increasing Role of the Debt Capital Markets...... 53
I. The bond markets international growing role...... 54
1.1 The global bond capital market trends...... 54
1.2 The growing importance of the euro capital markets...... 55
A. The euro as one of the major international currencies...... 55
B. Paris, the leading euro-denominated bond market...... 56
1.3 The Chinese corporate bond financing and the debt capital market...... 59
A. Onshore...... 60
B. Offshore...... 61
II. The Sino-French Financial Cooperation...... 62
2.1 Paris EUROPLACE organisation and missions...... 62
2.2 The Sino-French Financial Cooperation...... 63
A. 2010 Municipality of Shanghai/Paris EUROPLACE MOU...... 63
B. 2012 NAFMII/ Paris EUROPLACE MOU...... 64
Conclusion...... 65
Exhibits...... 69 6 n The RMB Internationalisation Paris, a hub for Europe The RMB Internationalisation Paris, a hub for Europe n 7 Foreword
The internationalisation of the RMB is a key event for the international monetary system and a key opportunity for international corporates and market players to support the development of their business with China. Paris EUROPLACE, the leading Eurozone financial center, which gathers all the market users – corporates, including SMEs, investors, banks and financial institutions - is more than ready to contribute to this process and develop RMB instruments and services on European level.
More particularly, the French corporates are closely following the development of the RMB denominated financial and banking services. The growing commitment of French companies, large and SMEs, in China confirms the importance for French companies to gain access to RMB banking and financial products. This need is already highlighted by several key facts and trends: - Nearly 10% of the Sino-French trade is settled in RMB; - The growing use by French corporate of the RMB banking services: the major international banks in Paris are offering to their clients from Hong Kong and also from Paris, all the RMB instruments and services already available. Moreover, the volume of RMB deposits in Paris already amounts to RMB 10bn. - The French companies are among the major European users of RMB-denominated bonds in Hong-Kong with RMB 7 bn issued in 2011/2012.
This market is already considered by the major French corporates active in China as competitive, not only for its attractive terms but also for the diversification of the investors’ demand which it offers.
In this context Paris EUROPLACE has set up a working group, gathering the French and Chinese major banks based in Paris, as well as the Market Authorities, to identify the Paris financial marketplace priorities. First concrete objectives have been identified:
- to develop the best RMB-denominated offer and services for corporates, including SMEs, to accompany the development of their trade and/or investments activities in China, - to organize an efficient offshore RMB liquidity pool in Paris to retain and recycle RMB flows, including the Sino-African business flows which are traded through Paris, - to offer the best liquidity to international banks active on the RMB market at any time in a day, in complementary with Hong Kong trading hours.
This document illustrates the ambition of Paris marketplace to participate, in a concrete and active way, in the internationalisation of the RMB and to consolidate its position as a major RMB hub for Europe. Gérard MESTRALLET, Chairman, Paris EUROPLACE, Chairman, GDF SUEZ
6 n The RMB Internationalisation Paris, a hub for Europe The RMB Internationalisation Paris, a hub for Europe n 7 8 n The RMB Internationalisation Paris, a hub for Europe The RMB Internationalisation Paris, a hub for Europe n 9 Glossary
− PRC: People’s Republic of China
Chinese regulators − PBoC: People’s Bank of China − MOFCOM: Ministry of Commerce of the People’s Republic of China − MOF: Ministry of Finance of the People's Republic of China − SAFE: State Administration of Foreign Exchange − NDRC: National Development and Reform Commission − NAFMII: National Association of Financial Market Institutional Investors − RMB: Ren Min Bi, the name means the “People’s Currency”. It is the official currency of the PRC − CNY: Chinese National Yuan, the Yuan is the primary account of the RMB. CNY is the only code of the Chinese currency recognized by the ISO (International Standards Organization) − CNH: Chinese Yuan deliverable in Hong Kong, this non-official code designates the offshore RMB to be distinguished from onshore RMB which is legal tender in the PRC
Hong Kong regulator and associations − HKMA: Hong Kong Monetary Authority − SFC: Securities and Futures Commission (regulator of the securities firms) − TMA: Hong Kong Treasury Market Association − LMA: Loan Market Association − APLMA: Asian Pacific Loan Market Association
Interest rates − EURIBOR: Euro Interbank Offered Rate − LIBOR: London Interbank Offered Rate − SHIBOR: Shanghai Interbank Offered Rate − HIBOR: Hong Kong Interbank Offered Rate (not yet in existence)
Payments and Settlement System − SWIFT: Society for Worldwide Interbank Financial Telecommunication − CNAPS: China Advanced Payment System − CIPS: China International Payment System − CMU: Central Moneymarkets Unit (clearing and settlement system of debt securities in Hong Kong)
8 n The RMB Internationalisation Paris, a hub for Europe The RMB Internationalisation Paris, a hub for Europe n 9 10 n The RMB Internationalisation Paris, a hub for Europe The RMB Internationalisation Paris, a hub for Europe n 11 Executive Summary: The RMB Internationalisation Paris, a hub for Europe
The Paris EUROPLACE Working Group’s1 assessments are based on two markets surveys initiated by Paris EUROPLACE focusing on: − the range of RMB financial services offered by the members of the Paris EUROPLACE Working Group (exhibit 1: Banque de France’s questionnaire); − the needs and practices of French corporates regarding the use of offshore RMB (exhibit 2: 2012 Paris EUROPLACE Survey). Moreover, Bank of China (BoC) conducted a general market survey among 200 clients in February 2012; their conclusions are included in the Paris EUROPLACE Working Group analysis.
Part I: The Emergence of a New “Settlement Currency”
An international currency market requires a sufficient amount of liquidity to perform smoothly and efficiently. Since the RMB is currently not fully convertible, the two main sources of the RMB offshore liquidity are: − for the private sector: the “trade settlement scheme” initiated by China’s State Council; − for the public sector: the “bilateral swap agreements” between the PBoC and international Central Banks.
I. The private sector and RMB Internationalisation
1.1 The Trade Settlement Scheme The “trade settlement scheme” introduced in stages since 2009 by China’s State Council, allows the People’s Republic of China (PRC) international trade to be settled in RMB. The percentage settled in RMB grew from 2.5% in 2010 to 12% as of October 2012 and this ever- growing trend seems irreversible. − Hong Kong was the main beneficiary of the “trade settlement scheme”: RMB deposits increased almost exponentially to reach close to CNY550bn in September 2012. This trend is essentially driven by the growing use of the RMB as a trade settlement currency and partly by the expectations of the RMB’s appreciation (30% since 2005). − RMB used for trade settlement can be obtained through a Clearing Bank (BOC-HK) within a “conversion quota” of CNY8bn by trimester for all the conversion on onshore RMB (CNY) converted into offshore RMB (CNH) and vice-versa. In addition, to prevent any offshore RMB liquidity squeeze, a bilateral swap agreement between the PBoC and the HKMA has been in place since 2003. − In order to be efficient, the trade settlement scheme also requires a “technology transfer” compatible between the existing onshore settlement platform and the offshore cross- border payments system. Today, such compatibility is still imperfect and the PBoC is developing a new system to settle cross-border RMB payments aimed at accelerating the volume of trades settled in RMB.
1 The Paris EUROPLACE Working Group is composed of the Banque de France and the French Treasury, Ministry for the Economy and Finance as observers, Bank of China Paris, BNP Paribas, BPCE Natixis, Crédit Agricole, HSBC, ICBC Paris, Linklaters, Société Générale,.(cf: Exhibit 6)
10 n The RMB Internationalisation Paris, a hub for Europe The RMB Internationalisation Paris, a hub for Europe n 11 1.2 Offshore RMB financial market From the development of a RMB offshore liquidity in Hong Kong (the CNH market), there has emerged a RMB offshore capital market principally comprised of securities such as bonds and CDs, equity (also there has been only one IPO to date) and to a lesser extent, bank loans. − Today, the CNH offshore bond market is mainly used by Chinese (40%) and Asian (30%) issuers. The remaining 30% are used by European issuers, of which more than 90% are French and German. Investor demand is mainly Asian, accounting for more than 70%, and between 20% to 30% European. Almost 80% of bond tenors are up to 3 years and the number of institutional investors seeking longer maturities (up to 10 years) is limited but increasing (mainly insurance companies which start to write insurance contracts in RMB). − The CD market is mainly used by HK banks (including local branches of French and other European banks) as a complement or substitute to RMB deposits. − The offshore RMB loan market is limited to bilateral bank loans, the lack of official offshore RMB benchmark reference rates being the main barrier to the emergence of a RMB syndicated loan market.
1.3 Onshore RMB assets accessible to offshore investors The Chinese regulators are encouraging and facilitating the repatriation of offshore RMB either to finance onshore investments or to invest in onshore RMB assets (equity or bonds). Two schemes allow non-resident financial institutions that have been approved and licensed by Chinese authorities to commercialize funds that are then invested in onshore assets within an individual and fixed quota: − Qualified Foreign Institutional Investors (QFII), whose total quota was raised from CNY30bn to CNY80bn in April 2012; − RMB Qualified Foreign Institutional Investors (RQFII) launched early 2012 and whose quota has been raised to CNY 70bn in April 2012 and should soon be raised to CNY 270bn.
II. The Public Sector and the RMB Internationalisation
In addition to the HKMA, the PBoC has contracted several currency bilateral swap agreements with international Central Banks, allowing, within the limits of the swap line, convertibility of the RMB. With such facilities, foreign Central Banks can add RMB assets to their foreign currency reserves and facilitate cross-border RMB trade settlements and RMB investments.
Part II: Paris and the RMB Internationalisation
The Paris financial centre supports RMB internationalisation as an important opportunity. Hence, the major concrete priorities for the Paris financial centre are: • to organize the best RMB-denominated offer and services for corporates, including SMEs,
2 « France has plenty of successful world class multinationals in a wide variety of industries » (Financial Times, November 17, 2012). 3 MOFCOM Circular date 12 October 2011 and PBoC Measure date 13 October 2011.
12 n The RMB Internationalisation Paris, a hub for Europe The RMB Internationalisation Paris, a hub for Europe n 13 • to organize an efficient offshore RMB liquidity pool in Paris to retain and recycle RMB flows including the Sino-African business flows which are traded through Paris, • and to offer the best liquidity to international banks active on the RMB market at any time in the day, in complementary with Hong Kong trading hours.
Statistics are limited for assessing the size of the offshore RMB market in Paris. This is why, a qualitative survey was conducted within the members of the Paris EUROPLACE Working Group. It is worth noting that many banks are currently expanding their RMB operations in France and that, at the very least, the major French and Chinese banks in Paris, also present and active in Hong Kong, are already offering, both in Paris and Hong Kong, most of the RMB products and services currently requested by companies (taking into account the time zone difference). In addition, the current level of Paris RMB activities can be estimated from the two surveys undertaken by Paris EUROPLACE and Banque de France. Indeed, the ratio of French trade with China settled in RMB, is progressing, especially with the large corporates (most of whom are very active in China), but those possibilities remain not very well-known among the SMEs. .
Of equal significance is how and why the French corporates2 are using the RMB offshore market and, more specifically, the offshore bond market (the second market survey). This market is already considered by the major French corporates active in China as competitive, not only for its attractive terms but also for the diversification of the investor base it offers. With the relaxation of the repatriation of bonds (and loans) proceeds in China3, French corporates have been increasingly relying on exclusively the RMB offshore market to finance their development in China. Moreover, most offshore RMB bonds issued by French corporates are issued from Paris: they are deposited with the French central depositary of securities (Euroclear France), they are documented “off the shelf” of an EMTN programme registered with the AMF (the French Financial Markets Authority). They are governed by French Law and are listed on Euronext Paris. Only the pricing, syndication and placement are done from Hong Kong considering that most of the investors are located in Asia (although the share of European investors is increasing).
Part III: The Increasing Worldwide Role of the Debt Capital Markets
I. The increasing role of the debt capital markets
1.1. According to the latest BIS statistics, Paris is the leading securities debt markets in Europe in terms of total amount outstanding, ranking number 3worldwide, after the USA and Japan. The securities debt markets are playing a major role within the economy and corporate funding and this ever-growing trend will further be accelerated in the coming years.
1.2. Chinese corporates financing is following the same pattern driven by the debt securities markets and less by bank lending. Furthermore, Chinese corporates are not only the main issuers on the offshore RMB bond market but are important players also on the international (USD, JPY and EUR) markets.
12 n The RMB Internationalisation Paris, a hub for Europe The RMB Internationalisation Paris, a hub for Europe n 13 II. The Paris EUROPLACE approach
The increasing role of the debt capital markets in the Eurozone as well as in the People’s Republic of China (PRC) are the main factors guiding the Paris EUROPLACE approach:
2.1. Paris EUROPLACE gathers today all the market stakeholders – corporates, investors, banks, insurance companies, law firms, etc – operating from Paris whether French orinternational, along with the French market authorities and regulators. Therefore, Paris EUROPLACE’s mission is to leverage the collective strengths to achieve the greatest efficiency and openness of Paris as the main Eurozone financial centre. In that respect, one of the Paris EUROPLACE’s other main mission is to develop business relations with other international financial centres.
2.2. Faced with the increasing role of the RMB debt capital markets (onshore and offshore), Paris EUROPLACE signed in December 2010 a MOU with the Shanghai Financial Services Office of the Shanghai Government and in April 2012, a MOU with the National Association of Financial Market Institutional Investors (NAFMII). Moreover, Paris, once the capital control are at least partially lifted by Chinese authorities, welcome Mainland Chinese investors in Paris where they could either subscribe to equity or bond of the many French corporates that rank among the leading companies of their sector worldwide (with 32 of the Fortune 500 global companies, France ranks number 4th).
Conclusion
Paris EUROPLACE’s immediate objective is to accelerate and widen the understanding of the opportunities offered by the RMB internationalisation to those French corporates trading and investing in China, and also the many SMEs who are less informed. In that respect, the current level of offshore deposit and liquidity in Paris is sufficient enough to foster growth. And, it is important to keep in mind that there is no frontier between the various offshore markets outside of China and that in fact; the liquidity is already freely flowing between them, only constrained by time zone delays. In practice, Hong Kong is currently providing enough liquidity to Paris to cope with the evolution of the RMB trade settlements today and for the near future. However, above a certain level of RMB business, a specific action such as a swap line should be considered by French authorities.
Concretely, Paris EUROPLACE Working Group is committed within the developments of the Chinese currency, with the objective of accompanying European corporates to locate their RMB-denominated financial activities in Paris by: − developing further access to RMB products and services in the European time zone to facilitate the European corporates, notably SMEs, to use RMB for trade settlement purposes, − building on the Paris’ strengths, as the European leader for Euro-denominated corporate bond market, the major gateway for RMB bond issuance in Europe and, custody services can also be expected to develop as a significant part of the Paris offer. − Moreover, dealing in Europe, through Paris, will also allow French companies to maintain a single legal framework reducing the cost of doing business with China.
14 n The RMB Internationalisation Paris, a hub for Europe The RMB Internationalisation Paris, a hub for Europe n 15 Paris EUROPLACE’s third objective is to widen the scope of the cooperation with China by sharing expertise and information.
Paris’ prime position as an international financial centre and its growing level of RMB- denominated business put it in a very good position to be a major player in developing the international RMB market and at the very least, the main RMB offshore center of the Eurozone There is a strong commitment amongst Paris’ global institutions to develop RMB business, contributing to the emergence of the RMB as one of the foremost global currencies alongside the USD and the Euro.
14 n The RMB Internationalisation Paris, a hub for Europe The RMB Internationalisation Paris, a hub for Europe n 15
Part I The Emergence of a New “Settlement Currency” I. The Emergence of a New “Settlement Currency“
I. The private sector and the RMB internationalisation he gradual internationalisation of the RMB market has been driven by the Chinese State Council, the PBoC, the MOFCOM and the SAFE. The three phases towards that internationalisation have been (1) the establishment of the Trade Settlement TScheme in 2009, followed by (2) the emergence of an offshore RMB compartment of the international financial market in 2010 and more recently (3), the development of RMB offshore portfolio flows.
1.1. The Trade Settlement Scheme
A. An irreversible trend ? In 2009-2010, the PBoC launched several initiatives to encourage the private sector use of the RMB. In July 2009, a pilot programme authorizing the invoicing of commercial transactions in RMB of five authorized Chinese cities with Hong Kong, Macau and the ASEAN countries was launched. In June 2010, the programme was expanded to twenty Chinese provinces for all transactions with any part of the world. Since June 2012, all Chinese entreprises which are eligible to international trade are allowed to use RMB for cross-border trade settlement. a. Such initiative is part of a more global China FX deregulation trend The China FX Deregulation Trend
PBoC announced that On 8 April 2009, China’s On 19 July 2010, PBoC and On 13 January 2011, the On 11 January 2012, the On 15 April 2012, the China will implement a State Council announced a HKMA signed a PBoC unveiled rules National Development and PBoC announced to widen regulated, managed oating pilot program to allow Supplementary Memoran- allowing domestic rms to Reform Commission USDCNY daily trading exchange rate system based exporters and importers in dum of Cooperation while use RMB for direct announced on its website band to allow CNY to on market supply and ve cities to settle cross- the PBoC and Bank of investment overseas. that Guangdong Nuclear uctuate by up to 1.0% in demand and in reference to border trade deals in CNY. China (Hong Kong) also Power (China's second- value against USD each day a package of currencies On 6 July 2009, Bank of signed a revised Settlement RMB ODI largest reactor builder) won with eect from 16 April since 21 July 2005. China transacted the rst Agreement on the Clearing its approval in December 2012, up from 0.5% cross-border CNY trade of Renminbi Businesses to 2011 for RMB 3bn of loans previously. USD/CNY Fixing: settlement deal. expand CNY business scope from Bank of China in 8.2765 on 21 July vs. from trade related to Hong Kong. USD/RMB Trading Band 8.1100 on 22 July RMB Cross-Border Trade general purposes Widening Settlement CNH Loans e Birth of New Currency “CNH”
On 17 August 2010, PBoC On 12 October 2011, publised its Notice on Pilot MOFCOM published its SAFE announced on 13 Scheme for Renminbi “Circular on Relevant Issues August 2007 that domestic Clearing Bank and Other on Cross-border RMB institutions may retain Eligible Institutions outside Direct Investment” – their foreign exchange the Mainland to invest in Foreign investors may use On 16 December 2011, income under the current the Mainland’s Interbank their legitimate oshore China launched its account according to their Bond Market. RMB funds to directly long-awaited RMB QFII operational needs and invest into China. (RQFII) pilot programme Banks shall stop using the SAFE announced its new with an initial quota of quota administration NOP2 limit with eect from On 13 October 2011, PBoC RMB 20bn. SAFE decided to replace function of the foreign 9 November 2010 in addition issued the “Administrative previously existing NOP1 exchange account to the existing NOP1. Measures on RMB CSRC said on 3 April 2012 and NOP2 limits with new management information e PBoC announced on 19 Settlement for Foreign this quota has been +/- position limit system when opening June 2010 that they would NOP1= FX Spot + FX Direct Investment” – increased to RMB 70bn. management with eect foreign exchange accounts "proceed further with Outright Forwards >=0 replacing the prior QFII quota ceiling was from 16 April 2012. and handling foreign reform of the RMB case-by-case approval increased by USD 50bn to exchange receipts and exchange rate regime and NOP2=[NOP1 – Outright requirement USD 80bn as well. Allow negative Lower payments for domestic increase the RMB exchange Forwards] as of 8 November Limit in NOP1; Cancel institutions. rate exibility." 2010 RMB FDI RMB QFII NOP2
Source: BNP Paribas
1819 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 1819 b. An exponential acceleration of cross-border RMB trade settlements The use of the RMB as a settlement currency for foreign trade transactions has rapidly increased. In September 2012, cross-border payments in RMB amounted to RMB CNY279.65bn and accounted for about 10% of total transactions compared to 2.5% in 2010. A large share of the RMB-denominated trade is carried out with Hong Kong. This scheme was initially beneficial mainly to Mainland Chinese importing companies which could pay for their imports from foreign suppliers in RMB, while foreign buyers were reluctant to use RMB to pay for their imports from Mainland Chinese suppliers, preferring keeping their RMB offshore in the expectation of gains from RMB appreciation against other currencies (mainly USD). However, with the market turmoil experienced at the end of 2011, those expectations have moderated, and the use of RMB in cross-border trade settlement has become more balanced; initially, RMB payments for Chinese imports represented 80% of the total cross- border settlements compared to only 20% for Chinese export payments; today, the split is closer to 60:40. While RMB trade settlements are increasing rapidly, more than 90% of China foreign trade is still settled in foreign currencies, mainly USD.
Cross-border Trade Settlements in RMB (in CNY bn) 800
700
600
500
400
300
200
100
0 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12
Source: PBoC, Société Générale
RMB Cross-border Trade Settlement by Goods and Services, 2011 (in CNY bn) 600 550 500 450 400 350 300 250 200 150 100 50 0 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12
Goods Services
Source: PBoC, Société Générale
1819 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 1918 c. Cross-border trade settlements still effected mainly in Hong Kong Commercial transactions denominated in RMB (% of the total at the end of January 2012)
Others 21.1%
Hong Kong Macau 63.7% 2.4% Japan 2.5% Taiwan 2.6% Singapore 7.7%
Source: BBVA Research
d. The acceleration of RMB cross-border trade settlements offers new opportunities (and new challenges) for the Eurozone trade relationship with China China has become the world’s largest exporter and second largest importer. Since 2009, trade ties between China and the world’s main economies have become closer, driving up the volume of imports and exports over recent years. The chart below shows that in 2011, China’s imports and exports totalled USD3.6tn. Of those, trade with EU, US, ASEAN, Hong Kong and Africa increased, respectively, by 18%, 16%, 24%, 23% and 26% from the previous year, maintaining a rapid growth.
Trade Volumes between China and Major Economies in 2009-2010-2011 (in USD)
6 000 5672
5 000 4466
4 000 3629 3429 2009 3 000 2835 2010 2456 2011 2 000 1600 1166 1 000 792 739 474
0 EU USA ASEAN Japan Hong Kong Korea Africa Australia Russia India Canada
2021 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 2021
Total Year EU USA ASEAN Japan Hong Kong Korea Africa Australia Russia India Canada import and export 2009 3640 2983 2130 2288 1749 1562 911 601 388 386 297 22075 2010 4797 3853 2928 2978 2306 2072 1269 881 554 556 371 29728 2011 5672 4466 3629 3429 2835 2456 1600 1166 792 739 474 36421
Source: MOFCOM, PBoC
The Eurozone trade relationship with China is also growing. It accounts for 14% of total Chinese exports and 10% of total Chinese imports. Conversely, China is the third destination for French exports after the European Union and the United States, accounting for 3% of total French exports. China is the second foreign supplier to France after the European Union, representing 8% of total French imports.
Structure of China’s Trade (2011, in % of total)
EXPORTS IMPORTS Asia 47.4 Asia 57.6 Europe 21.8 Europe 16.8 of which Euro Zone 14.0 of which Euro Zone 10.2 of which Germany 4.0 of which Germany 5.3 Netherlands 3.1 France 1.3 Italy 1.8 Italy 1.0 France 1.6 Belgium 0.6 Spain 1.0 Netherlands 0.5 Belgium 1.0 Spain 0.4 Finland 0.3 Austria 0.3 Greece 0.2 Finland 0.3 Portugal 0.1 Ireland 0.2 Slovakia 0.1 Slovakia 0.2 Malta 0.1 Portugal 0.1 of which United Kingdom 2.3 of which United Kingdom 0.8 North America 18.4 North America 8.3 Latin America 6.4 Latin America 6.9 Africa 3.9 Africa 5.3 Oceania 2.2 Oceania 5.1 TOTAL 100.0 TOTAL 100.0
Source: CEIC, Société Générale
2021 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 2120 e. The use of RMB by overseas corporates and financial institutions According to a Bank of China's survey conducted in February 2012 among 200 clients, either Chinese or international large companies (including 12 French large companies), 67% of overseas/non-Chinese corporates and 30% of overseas/non-Chinese financial institutions have used or plan to use RMB and another 30% of overseas/non-Chinese financial institutions showed a keen interest in RMB business.
Among the corporates, 43% expressed particular attention to diversified and optimized asset/liability allocation, 56% to new facilitating financing arrangement options, 68% to tapping opportunities in RMB financial markets, 87% to exchange rate risk management tools and 97% to facilitation of trade between China and relevant regions.
Use of RMB by Overseas Enterprises (Feb. 2012)
Have used 18%
Plan to increase use 24%
Plan to use within 6 months 25%
No needs now 33%
0% 5% 10% 15% 20% 25% 30% 35%
Source: 2012 Bank of China Survey
Use of RMB by Overseas Financial Institutions (Feb. 2012)
Have already opened 20% RMB accounts
Plan to open accounts within 6 months 10%
Interested in RMB 30%
No needs now 40%
0% 10% 20% 30% 40% 50% Source: 2012 Bank of China Survey
2223 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 2223 And, according to the TMI (Treasury Management International) survey, led among Asian, American and European companies, RMB demand for cross-border settlement is growing: 71% of respondents already settle or forecast to settle in RMB. Chinese customers and suppliers intend to continue exercising their power to demand settlement in RMB.
Key Business Drivers for RMB Settlement
60,20% Requirement by customer or supplier 44,90% ability to negotiate better pricing 33,70% abilitty to o set RMB assets and liabilities
7,10% other
Source :Source: treasury 2012 Management TMI Survey International May 2012
Opportunities clearly exist to increase awareness of companies on RMB-related settlement and trading issues. Over 25% of respondent companies of the same survey admitted they were not even aware of the possibility to settle in RMB and nearly 20% indicated that they have no support from their banks to settle in RMB.
Barriers to RMB Trade Settlement
Do not have trade ows with China 23,40%
Not aware of the opportunity to settle ows in RMB 27,30%
No demand from customers or suppliers 27,30%
Would create surplus cash balance or decit in RMB 6,50%
Too much administration required 15,60%
No support from banks 19,50%
Other 9,10%
Source: 2012 TMI Survey
2223 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 2322 Continued growth in the use of RMB for trade settlement can also be attributed to factors such as Chinese and international companies benefiting from favorable borrowing costs, reduction in foreign exchange exposure and potentially, more competitive suppliers access Therefore, some Chinese buyers and suppliers will prefer to transact in their local currency, which can help foreign companies broaden their network of buyers and suppliers. Such a competitive approach is clearly important to the Eurozone trade relationships with China.
B. The offshore RMB liquidity a. The RMB offshore liquidity is mainly today in Hong Kong.
RMB Deposits in Hong Kong (in CNY bn) 700
600
500
400
300
200
100
0 01/10 05/10 09/10 01/11 05/11 09/11 01/12 05/12 09/12 Source: CEIC, Société Générale
Since HK banks were allowed to accept RMB deposits in 2004, the size of RMB deposits in HK has grown rapidly over the years, especially in 2010 and 2011. More recently, RMB deposits in Hong Kong decreased by 1.2% to CNY 545.7bn in September 2012 from the previous months. Total remittance of RMB for cross-border trade settlements amounted to CNY239.3bn in September 2012, compared with CNY254.2bn in the previous month. The deposit decrease is partly due to: − more channels of RMB going onshore; − reduced expectation of RMB appreciation. b. The PBoC strict control of the Hong Kong offshore RMB liquidity The three pillars of the PBoC liquidity monitoring: n An offshore RMB clearing bank: in 2003, the PBoC and the HKMA agreed that Bank of China, Hong Kong (BOC-HK) would function as the sole offshore RMB clearing bank (until 2016) in relation to deposits, currency exchange and remittances. BOC- HK has become the key provider of intraday liquidity to the “Participating Authorized Institutions” (as of August 2012, 128 with a presence in Hong Kong and 40 overseas). Each bank on this list has opened a settlement account (nostro account) with BOC-HK.
2425 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 2425 n The “conversion quota” between CNY and CNH: it is critical that the clearing bank has appropriate access to liquidity in CNY. Such CNY accounts are strictly regulated through a “conversion quota” (conversion of CNY into CNH and vice versa) made available by the PBoC. Regulatory limitations became manifest when BOC-HK exhausted its annual “conversion quota” of CNY 8bn in October 2010 due to a strong demand by banks for CNH (due in a large part to a profitable USD/CNH/CNY arbitrage). As a result. stricter conversion quota guidelines were implemented in 2011: − CNY 4bn quarterly quota for the first three quarters 2011 − Banks can only access the BOC-HK if they are “net-short or long” in CNY and have trade transactions settled within three months. Since then, the bulk of CNY transferred to Hong Kong through the conversion quota, is linked to trade settlements.
n The bilateral currency swap agreement between the PBoC and the HKMA: in early 2003, the PBoC and the HKMA signed a RMB 200bn bilateral swap line in order to provide liquidity to the Participating Authorised Institutions in case of a liquidity crisis. Such a crisis occurred in October 2010 when the HKMA was forced to activate the currency swap line. In November 2011, the PBoC doubled the size of the bilateral swap line to RMB 400bn in order to give additional comfort to the market.
c. The cross-border RMB payment system: operational challenges still exist. The internationalisation of the RMB, triggered by the cross-border trade settlement, requires a payment “circuit” securing a smooth process of cross-border transactions. The Chinese onshore payment system – CNAPS - was originally established to provide an inland RMB clearing service and as such, has limitations when it comes to processing cross-border RMB payments. For example, SWIFT and CNAPS message formats are not compatible and local language requirements have meant additional resources being allocated for manual processing. This is why, the PBoC is developing a new system to settle cross-border RMB payments aimed at facilitating the use of the Chinese currency in international trade and investment. The China International Payment System – CIPS - will be available to banks around the world and become the key infrastructure accommodating international RMB transactions.
The HKMA has also extended the operating hours of the RMB Real Time Gross Settlement system in Hong Kong to 15 hours, from 8.30am to 11.30pm (Hong Kong time) since June 2012. This provides financial institutions and other financial centres in the European time zone an extended window to settle offshore RMB payments through the Hong Kong infrastructure.
The RMB PBoC Monitoring The PBoC monitoring of Hong Kong offshore RMB (CNH) liquidity is aimed at establishing, as long as the RMB is not fully convertible, a separation between the CNY and the CNH by regulating the transfer from CNH to CNY. Such “scheme” should be soon reproduced with other Asian RMB financial centres: Taipei and Singapore.
2425 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 2524 1.2. From an offshore pool of liquidity to an emerging international capital market
A. RMB bonds issued from Hong Kong (and so far marginally, from other financial centres) a. A flexible legal environment Offshore RMB debt financings do not require any PRC or Hong Kong regulatory approval. The absence of authorization was confirmed by a “letter of elucidation” of the HKMA released in February 2010. The word “elucidation” was carefully chosen to convey the message that the letter was not introducing a new rule but was simply clarifying the pre-existing state of affairs. Indeed, the letter of elucidation had the desired effect of making market participants more comfortable and most probably encouraged Hopewell Highways Infrastructure to launch the first ever offshore RMB bond issue by a corporate in July 2010. This “first” was immediately followed by a raft of other offshore RMB bond issues. b. A controlled legal environment Evolution of the Offshore RMB Bond Market Regulation by Chinese Authorities
SAFE issued the “Notice on the MofCOM promulgated Issues relating to the Regulation the “Circular on Relevant HKMA permits of the Practice of Cross-border Issues on Cross-border nancial RMB Capital Account Related RMB Direct Investment” institutions and Business” - Onshore entities - Foreign investors may Corporation to borrowing RMB from oshore use their legitimate issue CNY bonds should use the same regulations oshore RMB funds to in HK as other foreign debis. directly invest into China. PBoC announced that mainland PBoC and HKMA CNY Financial signed a Supplementary PBoC promulgated the PBoC issued the businesses Institutions can Memorandum of Circular on Relevant “Administrative formally issue Cooperation to expand issues regarding Measures on RMB started in CNY-denominate CNY business scope from cross-border RMB Settlement for Foreign HK d bonds in HK trade rellated to general business-all application Direct Investment” - China authorities purposes e Birth of are reviewed by the displace the prior continue to support New Currency “CNH” authorities on a case-by-case approval HK to become the requirement. oshore CNY case-by-case basis. center.
Jan 18 Jun 8 Feb 11 Jul 19 Apr 7 Jun 8 Oct 12 Oct 13 2004 2007 2010 2011 2012 Jul 12 Aug 19 August Nov 24 Jan
First CNY bonds McDonald’s issued a Vice Premier Li Keqiang Baosteel (A3/A) issued a NDRC approved 10 issued in 2007 by CNH200m 3yr bond in stressed the key role Hong jumbo CNH3.6bn onshore banks to China Development HK. Kong’s oshore yuan 3-tranche transaction - issue total of Bank largeted to HK - First multinational market would play in th is is the rst ever CNH CNH25bn bonds in retail investors. company to issue a CNY internationalization of the transaction issued by a HK. denominated bond in HK Chinese currency. mainland corporate. From 2007 until July - issued ots EMTN Li also announced reforms 2012, only Chinese programme that will allow corporate and Hong Kong - e proceeds was issuers to sell bonds oshore banks issued CNY remitted into PRC in form of a Dim Sum fundraising denominated bond in of shareholder loan to for overseas investment. HK fund its China operation. Source: BNP Paribas
Offshore RMB financings require no Hong Kong or Chinese consent, so long as the proceeds of such financings are retained outside Mainland China. However, many issuers or borrowers in the offshore market intend to use the proceeds of their offshore financings for investment in their Mainland China businesses or operations. This means that RMB raised in the offshore pool need to become onshore funds, thereby making them subject to China’s capital and exchange controls. Obtaining the required consent from not less than three governmental authorities (PBoC, MOFCOM, SAFE) used to be the most time consuming part of any RMB offshore financing, but since October 2011, the PBoC and the MOF issued two circulars which made the process of RMB repatriation quicker and easier.
2627 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 2627 c. The offshore RMB bond market issuance The offshore RMB pool of liquidity is deposited primarily in Hong Kong. This explains why, today, almost 99% of the bonds are distributed from Hong Kong, but other financial centres are aiming at becoming a RMB bond distribution player.
n An erratic monthly trend for RMB issues
Offshore RMB Bond New Issues Volume: Monthly Trend (in CNY bn) 28,000 26,000 24,000 22,000 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0
Jul 2010 Jul 2011 Jul 2012 Sep 2010Oct 2010 Jan 2011Feb 2011 Jun 2011 Sep 2011Oct 2011 Jan 2012Feb 2012 Jun 2012 Sep 2012Oct 2012 Aug 2010 Nov 2010Dec 2010 Mar 2011Apr 2011May 2011 Aug 2011 Nov 2011Dec 2011 Mar 2012Apr 2012May 2012 Aug 2012
Source: Bloomberg, HKMA, 31 October 2012
Following the peaks of CNH bond issuances in January, May and August 2011, the market adjusted down marginally, which can be explained by poor market sentiment overall, as well as “digestion” of previous issues. Offshore RMB bond issuance reached a new peak in June/ July 2012, as many issuers accessed the market window to obtain RMB financing. The drop in supply of new CNH bonds in August to October 2012 is mainly due to the uncertainty of currency exchange rate developments. Market participants also appeared to be waiting on the side-lines until the Chinese leadership transition is completed.
2627 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 2726 n Offshore RMB new issues dominated by Chinese and Hong Kong issuers Number of Offshore RMB Issues 2011-2012
Total Financial Asian Issuers Corporate Total Worldwide Institutions (%) China 49 24 73 43 Hong Kong 24 8 32 19 Total 1 73 32 105 62 Taiwan 3 1 4 2 Singapore 2 0 2 1 Others 10 10 20 12 Total 2 15 11 26 15 Total Asian Issuers 88 43 131 77 (1+2) Rest of the World Corporate Financial Institutions Total Total (%) (ROW) Europe 18 13 31 18 USA 4 1 5 3 ROW 2 1 3 2 Total ROW 24 15 39 23 Total Worldwide 112 58 170 100
Source: Bank of China International (HK)
Chinese (including Hong Kong) Issuers (2010-2011-2012)
Number of Total Volume Year Maturities Issuances (RMB million) Corporate 2010 6 8,260 2yr, 3yr, 5yr 2011 49 55,858 2yr, 3yr, 5yr 2012 18 18,710 2yr, 3yr, 5yr, 7yr, 9yr Financial Institutions 2010 7 20,000 2yr, 3yr 2011 4 3,600 2yr, 3yr, 5yr, 10yr 2012 27 24,100 2yr, 3yr, 5yr, 15yr, 20yr Ministry of Finance 2010 4 8,000 2yr, 3yr, 5yr, 10yr 2011 5 20,000 2yr, 3yr, 5yr, 7yr, 10yr 2012 6 23,000 2yr, 3yr, 5yr, 7yr, 10yr, 15yr
Source: Bank of China International (HK)
2829 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 2829 n Pricing and investors’ demand
− Impact of the FX fluctuation: an important factor which influences bond pricing and investors’ demand has been the reversal of the CNY appreciation trend against the USD. During the early days of the CNH bond market, investors were buying purely as a currency play. By the beginning of 2011, the average yield on RMB bonds was around 2% but investors were expecting the CNY to appreciate by between 4% to 5%. Now that appreciation is expected to be 1% to 2%, so current yields will reflect the new foreign exchange environment. Since the announcement on April 14, 2012, that the PBoC was widening the CNY daily trading range 1% from 0.5%, the implications for the CNH bond market are positive as the gap between the offshore RMB and the onshore CNY FX rate has become narrower which reduces some of the concerns investors may have had about volatility between the two rates. Despite an increase in yields now expected to be offered to investors, there is still an economic advantage in using the CNH bond market compared with onshore bank lending.
CNH Bond Pricing compared to PBoC Lending Rate AAA issuers (CNH bond) Lending PBoC Rate Tenor Yield 2 years 2% < 6 months : 5.60% 3 years 2.25% 6 months to 1 year : 6% 1 to 3 years : 6.15% 5 years 2.75% 3 to 5 years : 6.40%
7 years 3% 10 years 3.75% > 5 years : 6.55% 15 years 4%
Source: Bank of China International (HK) as of 30 October. 2012
− No established yield curve as such and limited secondary market liquidity: so far there has not been an established yield curve: although it was the Chinese MOF’s intention to develop such a yield curve through its own issuances, but market participants are not yet referencing their pricing against it. In addition, there is currently only a li mited secondary liquidity: active trading is normally restricted to the first couple of weeks following an issue and then, bonds tend to get firmly held with “buy-hold” investors. However, several indices were created in 2011 to track the evolution of the CNH yields: the first by Citigroup and HSBC and the second by Deutsche Borse and S&P Dowjones which will be the first index tradeable via ETF. − Dominance of bond tenors below 5 years: around 70% of issues have 2 to 5 year tenors. This group of tenors attracts the largest spread of investors: banks, institutional investors, individuals and corporates, among which between 15% to 25% are foreign investors (mainly UK funds) For above 5 year tenors, the number of investors is limited to Asian/Chinese insurance companies and pension funds. Insurance companies started to write insurance contracts for their clients in RMB so they are increasingly looking for longer-dated assets to match their liabilities.
2829 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 2928 Offshore RMB New Issue by tenor since July 2010
20 years 1 year 0.4% 0.7% 15 years 2 years 1.5% 10 years 22.4% 2.3% 9 years 0.5% 7 years 2.2% 5 years 14.6%
4 years 1.4%
3 years 54.0% Source: Bloomberg, as of 31October 2012 n CNH bonds and their use of proceeds
− FX arbitrage can offer swap opportunities by issuing CNH bonds and swapping back the proceeds into USD. Such opportunities can attract banks and corporates even if they have no natural use of RMB financing. − In August 2011, China’s Vice Premier reiterated Beijing’s support for Hong Kong as the offshore RMB hub; a gradual relaxation of the rules for remittance into Mainland China of CNH bonds proceeds by foreign corporates was implemented. The PBoC authorizes specific types of transfers: M&A (acquisition), equity injection, intercompany loans (“shareholder loans”), working capital, debt restructuring. − In addition, in May 2012, the NDRC gave approval for five Mainland state-owned enterprises to issue CNH bonds subject to investing the proceeds in appropriate Mainland fixed assets. - In October 2011, the rules governing the remittance of offshore RMB into China were significantly relaxed and clarified. For that purpose, the PBoC and the MOF issued two circulars which made the process of RMB repatriation quicker and easier.
The offshore RMB bond market is becoming a mature market: improved quality of issuers, more flexible use of proceeds in Mainland China, pricing less influenced by a currency play and Hong Kong under the HKMA regulation, has not only the largest pool of liquidity but also the required professional and legal expertise. Moreover, the Hong Kong CNH bond market can be also considered as the “testing ground” for Chinese corporates issuing bonds under the rules of an international market with international investors.
3031 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 3031 B. The offshore RMB CD market
An offshore certificate of deposit (CD) market has been developed in parallel to the exponential growth of the offshore RMB bond market.
New Issuances of CDs and Bonds and Deposits:Monthly Increase
CD new issuance 70 Bond new issuance Deposit monthly increase 50
30
10
-10 8/10 11/10 2/11 5/11 8/11 11/11 2/12 5/12 8/12
-30
-50 Source: Bank of China International
Offshore CNY CD Issuance: Monthly Trend (CNY millions)
22 20 18 16 14 12 10 8 6 4 2 0
Jul 2010 Jul 2011 Jul 2012 Sep 2010Oct 2010 Jan 2011Feb 2011 Jun 2011 Sep 2011Oct 2011 Jan 2012Feb 2012 Jun 2012 Sep 2012Oct 2012 Aug 2010 Nov 2010Dec 2010 Mar 2011Apr 2011May 2011 Aug 2011 Nov 2011Dec 2011 Mar 2012Apr 2012May 2012 Aug 2012
Source: Bloomberg. HKMA as of 31October 2012
The current outstanding CD volume is around one third of the offshore fixed income market’s size (total of CNH bonds and CDs). The main issuers of CNY CDs have been Chinese offshore banks showing a preference over bond funding particularly for shorter- term funding, because of the simpler issuance procedure, of more flexibility in tenors (long tenors – 7 or even 10 years – are possible) and issuance size. The execution process for a CD is shorter and cheaper than for a bond deal. Other issuers are Hong Kong banks and the
3031 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 3130 Hong Kong branches of international banks, including French banks. Most French banks with a presence in Hong Kong have established certificates of deposit programmes allowing them to issue CDs denominated in HKD, USD and now CNY. Although a couple of RMB CDs have been issued via London (ICBC: a RMB100m CDs programme via its London subsidiary) and New York (Bank of China, NY branch: 1year, 200m CD), the offshore RMB CD market remains essentially based in Hong Kong. CDare not equivalent to savings or time deposits, though, they are perceived to be of a better credit quality than bonds. Hence, they enjoy greater support from private banking clients and corporate accounts as cash management instruments.
C. The loan market It is generally accepted that, although the offshore RMB loan market is gradually developing, it will take some time before loans can challenge bonds as the main source of offshore RMB debt funding.
Two reasons are usually given for this comparatively underdeveloped loan market: − lack of a benchmark rate; − lack of a standard loan documentation.
There is at present no offshore RMB screen rate equivalent to EURIBOR or LIBOR that would give lending banks an easy reference to bid and offer rates. This is seen as the main obstacle to the development of an offshore RMB syndicated loan market. SHIBOR does exist but despite some convergence over the last 12 months, offshore rates are structurally lower than onshore rates to which SHIBOR relates. That said, some banks do publish an offshore prime rate: Bank of China (HK), HSBC and Standard Chartered starting posting their own offshore RMB offered rates on the TMA website about a year ago. And the movement is picking up pace; in April 2012, five more banks added their own prime rates on the TMA website. We are, therefore, getting closer to a HIBOR (H for Hong Kong) screen rate but we are not quite there yet. Some analysts argue that there are still discrepancies between the various prime rates posted, therefore rendering a composite rate impracticable. Whatever the reason, the fact remains that there is presently no HIBOR RMB screen rate.
The documentation generally used by lenders and borrowers around the world is that of the LMA and of its Asian counterpart, the APLMA. The APLMA loan template can be adapted for offshore RMB loans. However, there is no consensus (yet) on, for example, how RMB (non-) availability (illiquidity, non-transferability, non-convertibility) should be treated. The above reasons explain the relative scarcity of offshore RMB syndicated loans. By contrast, the bilateral loan market seems to be where the real action is happening. Bilateral loans are by nature more discrete and more bespoke than syndicated loans or listed bond issues. Some bankers claim that “the bilateral market is at least as big as the bond market” (Anun Kuruvilla, Managing Director of Loan Markets Origination, Royal Bank of Scotland, Euroweek, Offshore RMB Bonds 2012).
The terms, including the interest rate, of a bilateral loan are negotiated between a borrower and a lender, the latter normally using the offshore RMB provided by its depositors as its source of funding. This is the case of Chinese banks in Paris which are using their offshore
3233 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 3233 deposits in Hong Kong or Paris to extend loans to French corporates wishing to invest in Mainland China. There is no hiding the fact that the rates (usually fixed rates) are higher than those of a bond of corresponding maturity: transforming one-to-three months deposits into medium- or long-term loans has a cost, but a bilateral loan is a lot more flexible than bonds held to a large group of anonymous investors.
1.3. Onshore RMB (equities and bonds) accessible to offshore investors
A. Qualified Foreign Institutional Investors (QFII)
The QFII scheme allows foreign fund managers to convert foreign currencies in RMB to invest in Chinesemarkets.
B. RMB Qualified Foreign Institutional Investors (RQFII)
The RQFII scheme allows foreign funds to establish RMB denominated funds in Hong Kong for investment in China’s securitiesmarkets using RMB raised in Hong Kong. Unlike the QFII scheme, RQFII funds give investors the opportunity to use RMB rather than USD for investments in Mainland China. For the moment, the RQFII scheme is only accessible to Hong Kong subsidiaries of fund management companies or securities firms incorporated in Mainland China. After a slow start, investors’ interest has surged in July because institutional investors are less interested in the RMB appreciation or depreciation story and more focussed on gaining longer-term exposure to Chinese fixed income assets.
3233 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 3332 II. The Public Sector and the RMB Internationalisation
n addition to HKMA, the PBoC has entered into currency bilateral swap agreements (BSA) with international Central Banks. During the 2008 financial crisis, the PBoC established a series of BSAs with the central banks of some major commodities exporters Iand regional trade partners of China — Australia, Argentina, Belarus, Hong Kong, Iceland, Indonesia, Kazakhstan, Malaysia, Mongolia, New Zealand, Singapore, South Korea and Uzbekistan. These agreements, amounting today to a notional total of USD 272bn, allowed China to pay for its imports and to invoice its exports in RMB. Hence, the international exchange of a non-convertible currency became possible between a selected number of Central Banks.
2012 Inter-government Cooperation
Iceland, 3,5bn
Belarus, 20bn Kazakhstan, 7bn Mongolia, 5bn
Turkey, 10bn Uzbekistan, 0,7bn South Korea, 360bn Pakistan, 10bn Hong Kong, 400bn UAE, 35bn ailand, 70bn Malaysia, 180bn Singapore, 150bn
Argentina, 70bn
Australia, 200bn Bilateral currency swap agreements: 17 countries and regions, totaling RMB1,651.20 billion. New Zealand, 25bn Local currency settlement agreements for cross-border trade with 7 countries, including Laos and Vietnam. Local currency settlement agreements for general trade with Belarus and Russia
Source: PBoC
3435 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 3435 Chinese Regulators and the Monitoring of the RMB Offshore Liquidity
Other banks central Sector
PBoC public PBoC and the HKM A swap agreements
PBoC Quota liquidity Shenzhen Conversion Bank BOC-HK Hong Kong CNH Participant Banks Offshore Clearing PBoC monitoring the
SOEs Bonds Inland assets "! (NDRC) Chinese Chinese Investors issued by authorized corporations
PBoC ) and QFII RMB flows RQFII Foreign offshore portfolio investors institutional Private sector loan » Investors • RMB bonds • Offshore loans issued by foreign Cies Subsidiaries « Shareholder and e and trade the offshore RMB « repatriation » regulations Chinese importers fsho r Chinese regulators ( among which importers settlement Chinese Regulators and the Monitoring of the RMB Offshore Liquidity Intl’exporters Cross-border Onshore RMB exporters o f RMB
Source: Paris EUROPLACE
3435 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 3534 3637 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 3637 Part II Paris and the RMB Internationali- sation
3637 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 3736 II Paris and the RMB Internationalisation
“Paris is keen on developing an offshore RMB market. The Paris financial centre has always been an innovative place with a strong and internationalised banking sector. It presents today numerous strengths to become the main offshore RMB within the Eurozone. The French banks are some of the most active in Asia by far. On top of that, many French corporations have already demonstrated a keen interest in the RMB offshore market, both for financing and settling their trade with China and for optimizing their cost of financing and investing in China as trade settlement currency.
Paris is ready to provide them with all the necessary tools and expertise to support their RMB international operations. Therefore, we believe that all the conditions are met for Paris to become the RMB offshore centre of the Eurozone and as such bring a significant contribution to one of the most important financial events of the decade: the internationalisation of the Chinese currency.”
Christian NOYER, Governor, Banque de France, October 11th, 2012
The Paris financial centre supports RMB internationalisation as an important opportunity to strengthen and widen the scope of trade and economic relations between France, and by extension the Eurozone, and the PRC.
Hence, the major concrete objectives for the Paris financial centre are: - to organize the best RMB-denominated offer and services for corporates, including SMEs, - to accompany the development of their trade and/or investments activities in China, - to organize an efficient offshore RMB liquidity pool in Paris to retain and recycle RMB flows including the Sino-African business flows which are traded through Paris, - and to offer the best liquidity to international banks active on the RMB market at any time in a day, in complementary with Hong Kong trading hours.
In that context, Paris EUROPLACE’s first role is to widen the understanding and opportunities offered by the RMB internationalisation to a larger scope of corporates including SMEs and to facilitate their understanding of the RMB rules and practices. Concretely, Paris EUROPLACE will promote the present economic and strategic advantages of the offshore debt (bonds and loans) capital markets, which, in addition, can be considered as the “testing ground” for the developments of the Mainland China financial markets and their potential opening to international corporates.
The second task is to communicate the French and Chinese banks offer to corporates and investors in Paris and European level.
The third Paris EUROPLACE priority is to accelerate the mobilization of the market players and the market authorities, in France and on European level, to contribute to the development of the RMB internationalisation
3839 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 3839 I. The Paris Contribution to the RMB trade settlement scheme In order to assess the percentage of trade settled in RMB and the volume of such deposits, the Paris EUROPLACE Working Group, has used the information provided by each participant through a detailed questionnaire (cf.: Exhibit 1) devised and analysed by the Banque de France.
1.1 The SWIFT RMB data
A. RMB as a global payment currency
In recent years, the RMB has made spectacular progress as a world payment currency. From October 2010 to September 2012, the RMB has jumped from the 35th most used currency in world trade to the 14th position and in eight months only, the RMB went from 20th, in January 2012, to 14th in August 2012.
RMB as World Payments Currency
JAN 2012 AUG 2012
EUR #1 44.04% EUR #1 41.12% USD #2 29.73% USD #2 32.64% GBP #3 9.00% GBP #3 8.93% JPY #4 2.48% JPY #4 2.40% AUD #5 2.08% AUD #5 2.07% CAD #6 1.81% CAD #6 1.85% CHF #7 1.36% CHF #7 1.75% SEK #8 1.05% SEK #8 1.01% SGD #9 1.03% SGD #9 0.99% HKD #10 0.95% HKD #10 0.93% NOK #11 0.93% NOK #11 0.83% THB #12 0.82% THB #12 0.79% DKK #13 0.54% DKK #13 0.63% RUB #14 0.52% CNY #14 0.53% ZAR #15 0.48% ZAR #15 0.47% HUF #16 0.34% HUF #16 0.44% NZD #17 0.33% NZD #17 0.36% MXN #18 0.31% MXN #18 0.35% TRY #19 0.27% TRY #19 0.24% CNY #20 0.25% CNY #20 0.22%
Source: SWIFT, August 2012 White Paper
B. RMB transactions
When going through SWIFT statistics, a number of background elements should be kept well in mind for a better understanding of the figures. First, volumes of RMB transactions do not give the volumes of cross-border RMB payments, as they include payments with Hong Kong. Hence, offshore-offshore transactions, with two legs outside Mainland China, are also included. Secondly, when measuring the volume of RMB payments, based on the number of SWIFT messages sent and received, all types of transactions are included, whether FX transactions, interbank fund transfers or trade-related payments. Major FX trading centres like London, which handles nearly 30% of all RMB FX, and Singapore, therefore logically appear among the best-ranked in terms of RMB payments.
3839 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 3938 Top 10 Offshore Corridors with China and Hong Kong
Weight in . Weight in . COUNTRIES Offshore Corridors EXPORTS IMPORTS Jan 2012 Sep 2012 with China and United kingdom 24.8% 27.8% Hong Kong (weight Singapore 33.7% 26.4% in September 2012) France 6.0% 7.4% Eurozone 16.7% 14.0% 10.2% United States 7.5% 5.8% France 7.4% 1.6% 1.3% Luxembourg 4.0% 5.4% Luxembourg 5.4% N/A N/A Australia 3.9% 4.4% Germany 3.9% 4.0% 5.3% Germany 2.9% 3.9% UK 27.8% 2.3% 0.8% Taiwan 1.9% 3.3% Europe 44.5% 21.8% 16.8% Japan 2.82% 2.2% Source: SWIFT, September 2012 RMB Tracker Macau 1.3% 1.9%
1.2 French RMB trade settlement and RMB deposits
A. French RMB trade settlements
Bilateral Sino-French trade settled in RMB is progressing and considering the rapid pace of the trade between China and France and the increasing share of this trade being settled in RMB. This is indeed an encouraging result (and while no comparison could be made by the Working Group with other Eurozone countries and UK). This is why, Paris EUROPLACE and the Working Group members believe that with a much wider information and awareness campaign, the potential growth of RMB Trade Settlement in Paris is very significant.
B. RMB deposits with Paris banks
The Paris EUROPLACE Working Group’s estimations are that total RMB deposits from corporates and financial institutions is around RMB 10bn. A large part is deposited within branches of Chinese banks in Paris. An increasing volume of Chinese investments in Africa are financed with RMB loans and the beneficiaries are using the Paris branches of Chinese banks, for deposits or FX transactions.
II. The Paris RMB financial services offer Offshore RMB products and services can be offered outside Mainland China and Hong Kong by any bank, in particular the Participating Authorized Institutions, and are subject to very light regulatory restrictions except for cross-border payments. As of today, a wide range of RMB products and services currently offered in Hong Kong can be added to the Paris-based offer.
4041 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 4041 2.1 Account services
RMB current accounts and RMB savings accounts can be opened outside Mainland China, for corporate clients or financial institutions, following the standard account opening procedure. Along with the RMB Time Deposit and Demand Deposit accounts, all the participating banks of the Working Group offer settlement and cash management services. Cross-border RMB remittances, under the Chinese regulations, are however subject to specific restrictions.
Banks can provide various RMB trade finance products including letters of credit and other documentary operations denominated in RMB and their related financing, trade related guarantees and forfeiting on bank or corporate risk.
In addition to these accounts, a RMB Non-Resident Account (NRA) for corporate clients can be opened in Mainland China for the purpose of RMB trade settlement of cross border transactions. This current deposit account allows non-Mainland China corporate clients to settle transactions with a counterpart in China. These RMB NRAs are, however, subject to several restrictions (no cash deposit/withdrawal for instance). Corporate clients cannot convert foreign currencies into onshore CNY in order to transfer RMB funds into their NRA account. However, the regulation now allows the conversion of the RMB funds into foreign currencies to remit the funds outside Mainland China.
2.2 RMB cross-border funds transfer
Unlike offshore-offshore RMB payments (both legs located outside Mainland China), which are not subject to restrictions, cross-border payments with one leg in Mainland China are subject to several regulatory requirements. The process, however, which is quite similar to cross-border foreign currency payments, runs smoothly. • Current account transactions include both trade settlement and other current account transactions. Cross border remittances in RMB are offered for the settlement of trade in goods and in services. For any cross-border RMB trade transaction, a set of supporting documents must be provided to ensure that the transaction is genuinely trade-related. The document checking is mandatory. Other current account transactions, such as interest and dividends payments, are also offered. Overall, as long as the supporting documentation is provided, the process for current account transactions runs quite smoothly and is becoming streamlined. • Cross-border capital account transactions are subject to heavier regulatory requirements. The Chinese authorities have gradually expanded the scope of capital account transactions by developing specific schemes but there are still several restrictions and approvals to obtain. The Foreign Direct Investment (FDI) scheme allows the following transactions to be performed: remittance of capital, remittance of shareholder loans, equity transfer, mergers & acquisitions. Under the FDI scheme, the funds must not be used to invest in securities or financial derivative products - directly or indirectly (except investment in the stock market as a foreign strategic investor), or to arrange entrustment loans. In addition to the FDI program, the regulation allows specific foreign institutional investors to invest in the Mainland Chinese inter-bank bond market and
4041 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 4140 the RQFII scheme allows eligible entities to invest in Mainland China’s listed stocks and bonds markets. The demand for RMB based on a real trade background exists in Europe but information about, and the offer of, RMB products and services still needs to be improved. On the customer side, more information is needed in order to understand commercial opportunities and the business process.
2.3 Foreign exchange and time zone
The Renminbi (RMB) is the official name of the currency of China. The CNY (“Y” for yuan) refers to RMB on the onshore mainland Chinese market while the CNH (“H” for Hong Kong) refers to the RMB offshore. Due to the segregation of the onshore and offshore RMB markets, CNY and CNH are subject to different demand and supply forces which result in different exchange rates and yield curves. CNH is virtually treated as a different currency to differentiate the pricings. CNY remains the only ISO currency code for the RMB and there is no FX conversion so to speak between CNY and CNH.
Onshore CNY / CNH Product Ideas: Comparison Chart
USDCNY USDCNH Fixing page Reuters page “SAEC” Reuters page “CNHFIX=” Fixing contributor Official PBoC daily fixing rate HK Treasury Markets Association, contributed by 15 banks Fixing Time 9:15 a.m. Beijing time 11:15 a.m. Hong Kong time Tenor Liquid up to RY Liquid up to 3Y Daily NDF / spot turnover USD 4.500 mio USD 1.000 mio Trading band Spot::+/-1.0% from daily USDCNY No restrictions Fixing NDF: No restrictions
Source: BNP Paribas
Due to of a limited amount of available CNH and a strong demand for CNH in Hong Kong, the CNH used to trade at a premium against the onshore CNY but there is currently a convergence between the two spot rates. Since China has allowed a more flexible onshore rate (CNY/USD trading band widened to 1%) and is permitting more offshore-onshore links (FDI, ODI, etc), the onshore and offshore spots are indeed converging.
Time zone overlapping is one of the challenges for CNH trading and having longer operating hours is a major asset to cover several time zones. Given the big time zone difference between Paris and Hong Kong, the Paris-based offer allows longer trading hours for business.
The CNH pricing can be used in any offshore-offshore transaction without being subject to regulatory requirements, as it does not involve Mainland China. The onshore CNY pricing is, however, limited to cross-border trade transactions for trade in goods only. Cross border trade-related transactions involve a counterpart in the Mainland and thus are allowed to access the onshore liquidity pool. The 3 months rule applies when using the onshore
4243 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 4243 CNY rate. In other words, the customer can buy RMB at the onshore CNY FX rate for the settlement of a trade-related transaction, providing a full set of supporting documents, if the payment takes place within 3 months (starting from the delivery/value date of RMB purchase). Whether using the CNH or onshore CNY pricing, any cross-border trade-related transaction must be supported by underlying trade documents.
The following FX services can be offered, and do not require document checking unless related to cross-border trade transactions: • CNH Spot, Forwards, and Swaps: the CNH FX market has grown rapidly. Investors can also access CNH spots and forwards with tradable tenors now extending to 3 years • CNY spot for cross-border transactions with underlying trade in goods • CNH options (CNH): the CNH option market is still recent but growing rapidly. CNH vs. G7, currently up to 3 years. Vanillas, 1st generation exotics, hybrids • CNH Futures, since September 2012 • Structured Forward: CNH vs. G7, light structures and path dependent, hybrids • CNH Cross currency swaps: the main participants are corporate issuers and CNH loan takers. Fixed rate versus 3M USD LIBOR, liquid up to 3 years but quoted up to 5 years • CNH IRS: the IRS market is not fully developed because of a lack of a liquid money market, of recognized fixing rates and of hedging demand • CNH Repos, since June 2012: 1-week liquidity, eligible securities include Exchange Fund Bills and Notes Hong Kong Government Bonds and offshore China Government Bonds • Onshore CNY NDF: USD/Onshore CNY forwards are non-deliverable and settled outside Mainland China in USD against the fixing rate (PBOC onshore fixing rate). The offshore NDF market used to be one of the major markets used by investors to hedge RMB exposure, but the CNH market has gained importance.
Paris, a significant RMB trading center
Paris is already a significant trading centre for RMB payments, especially cross- border trade settlement in RMB, and is likely to keep on growing, in line with the pace of RMB Internationalisation. In a global market which operates 24 hours a day, having a working day which overlaps that of China, Hong Kong and the rest of the globe (from Australia to New York) is extremely important for Paris as a RMB trading centre. Some banks, present in Paris, have already organized their trading desks to start at midnight and close at 5pm operated with two teams. The Paris’ offer is, therefore, complementary to Hong Kong and China.
4243 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 4342 III. Paris and the RMB debt capital markets
3.1 French corporates are among the most active European issuers Although the offshore RMB bond market is still dominated by Asian issuers, it is worth noting that French issuers are together with German issuers among the most active European issuers in that market. In 2011/2012, the total of the offshore RMB- denominated bond issued by French corporates amounted nearly RMB 7bn, compared to RMB 8bn for German corporates and RMB 3.5bn for UK corporates.
A. European issuers
French issuers. German issuers. UK issuers. Total Europe (number of issues) (number of issues) (number of issues) Corporates Banks Corporates Banks Corporates Banks Corporates Banks (issues) (issues) (issues) (issues) (issues) (issues) (issues) (issues) Société BSH Bosch Air Générale und Siemens KfW (2) BP PLC (1) HSBC (1) Liquide (2) (2) (6) Tesco PLC Lafarge (1) Lanxess (1) L-Bank (4) (1) Alstom (1) BMW AG (1) Volkswagen Veolia (1) (1) Renault (2) 5 corporate 1 bank 4 corporate 2 banks 2 corporate 1 bank 18 13 bank issuers (7 issuer (2 issuers (9 issuer (6 issuers (2 issuer (1 corporate issuers issues) issues) issues) issues) issues) issue) issuers
Source: Paris EUROPLACE, November 2012 B. An important number of potential new French issuers To date, 18 frequent French issuers have already introduced a RMB option in their debt issuance programmes thus allowing them to rapidly execute a RMB deal, should a need arise and market conditions be favourable1. The wording of these RMB options has now become fairly standard: first, as with the development of any new currency still subject to formal exchange controls, potential investors are warned about the potential risks of illiquidity, non-convertibility and non-transferability of the currency; secondly, should RMB not be available on a payment day under the bonds, terms are included requiring the issuer to pay in alternative currency (up to now invariably the US dollar) equivalent of the coupon or principal of the bonds.
1 All the prospectuses relating to these programmes have been posted on the websites of the Autorité des Marchés Financiers or the Commission de Surveillance du Secteur Financier: Alstom, BNP Paribas, Danone, Electricité de France, France Telecom, Klépierre, Lafarge, L’Air Liquide, Peugeot SA, Rallye, Renault, Sanofi, Schneider Electric, Société Générale, Suez Environnement, Total, Valeo, Veolia Environnement.
4445 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 4445 C. Listing and depository system The link between the offshore RMB bond issued by French companies and Hong Kong has become rather remote. Although the first of such issues was deposited with the Hong Kong securities depositary (CMU - Central Money Market Unit), all subsequent issues have been deposited with the French central depositary of securities (Euroclear France) and/or its European counterparts (Euroclear Bank and Clearstream) principally because a growing percentage of investors in such bonds is now located outside Asia and, in particular, in Europe. Also, French law is now most frequently adopted as the governing law of RMB bonds issued by French companies.
The Paris market place has a proven record of rapidly responding to market needs and trends: • Euroclear France is not only capable of creating RMB bonds in its depositary system but it can activate a link (albeit an indirect one) between itself and CMU which allows the delivery of RMB bonds in CMU on a same day basis for those investors who prefer to hold their bonds through CMU; • The Autorité des Marchés Financiers (French securities regulator) clears prospectuses containing an offshore RMB option; • Euronext Paris lists and admits to trading bonds denominated in RMB.
D. The use of proceeds: illustration The “use of proceeds” clauses of the documentation prepared by some of the early issuers indicate that the issuers intended to use the proceeds of their offshore financings for investment in their China businesses. The “use of proceeds” clauses of the more recent RMB bond issues by French issuers are less specific; they simply state “general corporate purposes” which may signal that some issuers see the RMB market as a source of currency diversification even though they may ultimately want to swap the proceeds back into euro; this would make sense given that swap liquidity has been improving over the last year.
1. RMB bonds issued by European banks in April-May 2012
n Société Générale: two bonds in April and August for a total of RMB 1bn with respective tenors of 2 and 3 years. − Distribution: 75% Asian and 25% European − Depositary and clearing: Euroclear and Clearstream − Listing: Luxembourg − Use of proceeds: to capitalize Société Générale Chinese leasing subsidiary
n HSBC: one bond issued in April for a total of RMB 2bn with a 3 years tenor − Distribution: around 60% in Europe and a total demand of around 40% from private banks mainly for portfolio diversification − With this issue, HSBC wanted to demonstrate the growing demand from Europe for short-term (up to 3years) RMB assets − Listing: London
4445 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 4544 n KfW: one bond issued in May for a total of RMB 2bn with a 2 years tenor − Distribution: Europe 49%, Hong Kong 24%, Singapore 22%, rest of Asia 5% − Listing: Luxembourg − KfW was taking advantage of a favourable swap arbitrage (RMB/USD) without a specific need in Mainland China; although KFW considers that the development of the offshore RMB market is important for the long-term
2. RMB bonds issuance by French corporates n Renault: one bond issued in October for a total of RMB 750m with 3 years tenor and “reopened” in November for RMB 500m. It is an illustration of the RMB demand flexibility from Hong Kong − Depositary and clearing: Euroclear France, Euroclear and Clearstream − Listing NYSE Euronext-Paris n Veolia: one bond issued in June for a total of RMB 500m with a 5years tenor. Veolia had no immediate needs in PRC for financing projects but was expecting such needs to materialize within the next 6 months. Therefore, Veolia deposited the proceeds in Paris within a branch of a Chinese bank benefiting from a deposit rate which mitigates the “negative-carry”. − Depositary and clearing: Euroclear France, Euroclear and Clearstream − Listing NYSE Euronext-Paris
French Corporates as Active RMB Issuers The number of active and potential (as demonstrated by the inclusion of a RMB option in their EMTN programme) new issuers shows that the French corporates already consider the RMB offshore debt capital market as an integral part of their financing strategy in PRC. Moreover, they are also aware that the Chinese economy is progressively moving away from reliance on bank financing to a more capital markets- driven approach. Hence, by using the offshore RMB capital market, they want to develop their knowledge of the Asian-Chinese pool of investors and, in turn, better inform them about their activity in PRC (through focused research (in Chinese), roadshows, prospectuses, etc.).
4647 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 4647 3.2 The Paris offshore RMB loan market
Chinese banks in Paris benefiting from access directly and indirectly to offshore RMB liquidity deposits can fund RMB fixed rate medium-term loans from Paris to finance specific needs (projects, working capital, refinancing) in PRC. The use of proceeds repatriation through the “shareholder loan” route, is subject to the same regulation (mainly SAFE’s approval) on an offshore RMB bond. The rates (fixed rates) are higher than those of a bond because, beyond a 3 years tenor, the banks are exposed to a liquidity risk. Such bilateral loans, on average smaller than a bond issue but with similar tenor (3 to 6 years), are more flexible than a large group of anonymous investors (cf.: fixed rate RMB 600m, 7 years loan, provided by Bank of China, Paris Branch to Dalkia France: l’Agefi, 7 June 2012).
IV. Paris and the new emerging RMB financial centres
4.1 Criteria for a RMB financial centre
Several financial centres, other than Hong Kong, are slowly building their own RMB business. One of the key measurement of this trend, apart from the SWIFT payment statistics, is the amount of deposits which is either officially “registered” with a Central Bank or assessed through a questionnaire. Moreover, the deposits should be qualified as coming from the “trade settlement scheme”, the driving source of the RMB Internationalisation.
Therefore, if the deposits in: • Hong Kong (as of August 2012): RMB 552bn, • Singapore (as of May 2012): RMB 60bn, • Taiwan (as of July 2012): RMB 16bn, can be qualified as being driven by trade settlements, the deposits in Paris and also in London were assessed through a questionnaire.
Indeed, in Paris, the questionnaire was sent in September 2012, by the Banque de France to the members of the Paris EUROPLACE Working Group. In London, in order to assess the size of the RMB market, Bourse Consult, used a questionnaire addressed to a panel of 13 banks which was estimated to cover around 85% of the market.
4647 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 4746 If current volume of deposits is a criteria, the bilateral volume of trade with the PRC has also to be considered:
Location Volume of trade with the PRC (in USD bn, 2011) Hong Kong USD 284bn Taiwan USD 160bn Singapore USD 64bn United Kingdom USD 59bn France USD 52bn Eurozone USD 567bn
Source: Société Générale 4.2 The emerging RMB financial centres
A. Taipei In August 2012, a Memorandum on Currency Clearing Cooperation Across the Straits announcement was signed by the PBOC and the Central Bank of the Republic of China (Taiwan) CBC, opening the way for a RMB offshore market in Taipei. A clearing bank remains to be designated in order to enable the activation of the agreement, which will allow for the first time domestic bank units (or DBU, dedicated to resident customers) to conduct RMB business. Prior to the announcement, only Taiwanese offshore banking units (dedicated to non-residents customers, mainly located in Mainland China or in Hong Kong) could engage in RMB business and their transactions were often conducted through subsidiaries or other banks in Hong Kong. The CBC has also indicated it was seeking a currency swap arrangement with the PBoC to ensure proper liquidity of the RMB offshore market.
RMB Deposits in Taiwanese Off-shore Bank Units (in RMB billions)
18 16 14 12 10 8 6 4
2 0 août-11 oct-11 déc-11 fév-11 avr-11 juin-11 Source: Crédit Agricole CIB
4849 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 4849 B. Singapore Singapore also position's itself as the “regional hub” for the offshore RMB. It has established its global reputation as a hub for wealth management and commodities trading and could build on this expertise to expand it to the RMB off shore business. Compared to Taiwan, Singapore already has a currency swap arrangement with the PBoC amounting to RMB 150bn. In July 2012, it was reported that a Mainland Chinese clearing bank could be appointed in Singapore. However, details about the conversion quota that could be granted to Singapore’s clearing bank have not yet been specified and the licensing process for the clearing bank could take several months.
It is important to note that as in Hong Kong, Taiwan and Singapore will have the same offshore RMB “liquidity monitoring scheme”: - a clearing bank, - a conversion quota, - a bilateral swap line between the PBoC and the Central Bank.
4849 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 4948 The 2012 Paris EUROPLACE Survey of French Corporates’ Needs
Considering the current state of the Paris RMB business, one can recognize already three major tangible achievements: - a proven willingness to grow the volumes of commercial trade settled in RMB; - an existing capacity to offer all the financial services and products already proposed in Hong Kong (subject to time difference); - French corporates demonstrate strong interest in the offshore RMB debt capital markets.
A survey of the major French corporates was conducted by Paris EUROPLACE in November 2012 in order to assess their knowledge and practice of the RMB products and services, and the role of Paris and other offshore centres to satisfy their current and potential needs.
The main result is that roughly 50%of the largest French companies (the so-called “CAC40”) are already involved in one way or another in RMB business. Trade settlement is by far the main channel through which these companies are dealing with the Chinese currency, considering that the trade settlement scheme is much more developed at this stage than financing and investing products such as bonds and equity.
Main motives for settling some of their transactions in RMB (As a % of respondent companies already using RMB, multiple answers possible)
to improve the hedging of exchange rate volatility 91%
to avoid relying on a third party’s currency 82%
to satisfy the demand of partners 64%
to improve the cash management 36%
to gain a competitive advantage or follow the competitors 18%
to improve the pricing of products 18%
0% 20% 40% 60% 80% 100%
Obviously, most of these companies hold an offshore account in Paris and/or Hong Kong. However when asked about the offshore centers through which most of their RMB transactions are executed , Paris ranks first, ahead of London and even Hong Kong.
5051 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 5051 Financial marketplaces through which RMB transaction are performed (As a % of respondent companies already using RMB, multiple answers possible)
Paris 73%
Hong Kong 55%
London 27%
0% 20% 40% 60% 80%
Among those companies which have not entered the Trade Settlement Scheme yet, it appears a lack of information.
That’s why, an important objective for Paris EUROPLACE is : - to widen the understanding and opportunities offered by the RMB internationalisation to a larger scope of corporates including SMEs and to facilitate their understanding of the RMB rules and practices. - to communicate the French and Chinese banks offer to corporates and investors in Paris and European level. - to accelerate the mobilization of the market players and the market authorities, in France and on European level, to contribute to the development of the RMB internationalization.
Main possible catalyst for using RMB (As a % of respondent companies not currently using the RMB, multiple answers possible)
a more accessible banking oer 67%
the demand of trade partners 67%
the improvement of pricing power 44%
the competitive pressure 33%
0% 20% 40% 60% 80%
Source: 2012 Survey, Paris EUROPLACE
5051 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 5150 5253 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 5253 Part III The Increasing Worldwide Role of the Debt Capital Markets
5253 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 5352 III. The Increasing Worldwide Role of the Debt Capital Markets
ccording to several international studies and analysis, bond markets are playing a major and growing role in funding companies and economies in the coming years spurred by the global economic slowdown and the new prudential regulatory Arules implemented to regulate banks and investors activities. In the background of this trend, two major events are deeply transforming the international monetary and financial system: the launch of the €uro and its impressive growth, over the past decade, as an international currency competing the USD and, more recently, the emergence of the RMB in the international finance.
Moreover, international capital markets including the offshore RMB bond markets and the onshore Mainland Chinese capital markets are increasing financing sources for Chinese corporations. In such context, the objective of Paris EUROPLACE is to develop regular relations with the Chinese marketplayers, supported by the Paris’ preeminent ranking on the international debt capital market and the credentials of the French corporates1.
I. The bond markets international growing role
1.1 The global bond capital market trends
The global debt market has grown rapidly over the past decade to reach an amount outstanding of USD 100tn, up from USD 95tn one year earlier. According to BIS latest data, domestic bond markets represented 70% of the total and international bonds stricter. The impressive growth in the size of the global bond market means that it represents today nearly twice the size of the global equity market which had a market capitalisation of around USD 50tn.
1 It is worth noting that Paris is ranked n°1 and 3rd worldwide for the number of Fortune 500 companies headquarters. According to PWC study “China Deals, Fresh perspective”. While UK investors were the main deal drivers up to and including 2010, France overtook the UK in 2011, accounting for 26% and 35% of all M&A activity in 2011 and Q1 2012 respectively.
5455 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 5455 Global Bond Market (USD bn, outstanding)
100 90 International 80 70 60 50 40 30
20 Domestic 10
0 1
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1 March.
Source: Bank for International Settlements
If we look at the evolution of the Bond market comparatively at the global GDP,the global bond market increased to over 140% from around 80% a decade earlier.
1.2 The growing importance of the euro capital markets
A. The euro as one of the major international currencies
The European single currency is today the 2nd major currency of the International Monetary System. The €uro’s international role has grown in a gradual and steady way. Its international importance can be assessed by the role it plays in global financial markets and international trade, the extent of its use by authorities and official institutions as a reserve, intervention and anchor currency, and its possible use by the public or firms outside the euro area as a parallel currency.
• The second for foreign exchange reserves, representing more than 25% of the worldwide reserves today. All the Central banks in the world are diversifying their reserve in the favor of the €uro, notably Asian countries, including during the euro sovereign debt crisis testifying their entire confidence on the Eurozone mechanism and soundness. • Its weight accounts for 37.4% in the calculation of SDR basket, in comparison to 41.9% for USD. This is also due to the importance of the Eurozone as an international player, notably in the IMF activities to stabilize the international finance and monetary system. • Its use as a settlement or invoicing currency for international trade: more than 50% of French exports and around 65% of German exports were denominated in euro. This growing use of the €uro is international trade is due to the important weight of Europe
5455 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 5554 in the global economy: In spite of the recent difficulties, Europe is the largest economy in the world, with 25 countries and over 500 million people and a GDP of nearly €13,000bn compared to €12,000bn in USA and €4,000bn in Japan. Europe is also one of the more open economies in the world, realizing more than 19% of world exports. • And finally the growing role of the euro as an international vehicle, for debt securities issuing and as an asset of portfolios diversification. 25% of the global financial assets under managements are euro denominated, testifying the investors’ confidence on the euro assets.
B. The importance of the euro-denominated bond market
According to the latest, BIS statistics, Paris is the leading bond market in Europe with total outstanding amount of USD 5.8tn ahead of Germany (USD 5.5tn) and United Kingdom (USD 5tn). If we look at global level, Paris is in the 3rd position worldwide after the USA (USD 33tn) and Japan (EUR 14.5tn).
The Paris bond market is very developed, with a balanced structure between public issuers and private sector issues (financial and corporates). Only two markets in the world offer this market structure: the US market (50% public issues, 50% private sectors issues) and France (52% public, 48% private), compared with United Kingdom (84% public), Germany (70% public). This structure of the Paris bond market, in the context of a European sovereign debt crisis; demonstrates the sound deepness of the Paris bond market and its liquidity. That's why, a growing number of international issuers establish their euro denominated bond issues program in Paris.
Euro Issuing Activity (first quarter since 2009)
Issues volumes in € mn 1Q09 1Q10 1Q11 1Q12 Agencies 40,694 31,600 55,587 73,304 Supranationals 20,476 14,850 26,175 35,200 Central Government 308,477 323,694 307,653 365,897 Local Governement 24,732 27,488 19,681 24,541 Financials 242,994 180,479 178,423 191,668 Pfandbriefe/Covered Bonds 33,035 77,928 94,887 69,497 Asset-Backed Securities 87,554 65,544 81,790 81,409 Corporates 121,625 58,522 34,544 50,702 Total 879,587 780,105 798,740 892,218
Source: ECB, 2012
5657 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 5657 Global bond market Structure International Domestic Of which Total in bn of US dollars Public Financial Corporate United states 7 481 26 391 13 257 9 704 3 430 33 871 Japan 433 14 051 12 143 1 047 861 14 484 France 2 246 3 574 1 874 1 399 301 5 820 Germany 2 872 2 621 1 838 438 345 5 493 United Kingdom 3 211 1 823 1 524 279 20 5 034 Italy 1 350 2 973 2 056 859 58 4 323 China 186 3 407 1 485 1 256 301 3 593 Spain 1 966 1 574 3 540 Netherlands 1 493 1 006 2 499 Canada 736 1 622 2 358 Australia 642 1 135 1 777 Belgium 563 589 1 152 Sweden 467 445 913 Denmark 165 679 843 Switzerland 488 331 818 Ireland 492 237 729 Austria 335 329 664 Portugal 246 292 538 Norway 266 269 535 Greece 400 125 525 Finland 171 77 248 Source: BIS, March 2012
Paris EUROPLACE is mobilized since 2008 to accelerate the developments of the €uro- denominated bond market on the double forehead of the primary and secondary bond market:
• On the primary bond market, by improving the bond listing conditions in Paris. Significant improvements have been undertaken by the AMF to facilitate the registration of new programs in Paris market, improve communication toward French and international issuers, including the publication a “Frequently Asked Question” on the preparation of bond prospectus and approval procedures in Paris, etc. These measures enhanced the French primary market issues, and nearly 75% of the major French issuers, located their bond issues in Paris and boosting the French primary bond market, which records since the beginning of the 2012 more than EUR 180bn of issues.
• On the secondary bond market. The financial crisis revealed that the secondary bond markets are structurally characterized by a very limited liquidity. Paris EUROPLACE has set up the Cassiopeia committee, gathering Paris bond market issuers and investors to find solutions to improve the euro-denominated bond markets. The Committee considered the development of corporate bond platforms. These platforms, which are organized multilateral trading facilities, are intended to bring more transparency and
5657 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 5756 liquidity to the secondary bond market. More precisely, these platforms have to respect some principles and best practices: − Pre- and post-trade transparency and regular reporting to the market, the regulator, and issuers’ internal control. − Clearing house with central counterparty, guaranteeing the proper execution of transactions. − Openness to any regulated institution in Europe, “all to all.” − Governance that brings in market users.
The “Cassiopeia committee” also suggested that issuers be allowed to trade in their own bonds to participate at the enhancement of the market liquidity. And more recently the French markets authority, AMF admitted debt securities liquidity contracts as an accepted market practice.
Based on these principles and market practices, a first bond platform has been launched in July 2011, NYSE BondMatch, promoted by NYSE Euronext.
5859 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 5859 And, the relative importance of bonds as a source of finance for companies in Europe has increased since the start of the economic downturn. The shift towards bond markets, should it persist, could have important implications for how companies fund themselves in Europe.
The BIS Statistics shows that in Europe this trend benefited to Paris, which is the European leader for international bond issues and at the third position worldwide.
International bonds issues (by country of residence) Spain Germany 7% 11% US 19%
11% France
10% Netherlands 42%
Others
Source: Bank for International Settlements
1.3 The Chinese corporate bond financing and the debt capital market
The Chinese economy is gradually making the transition to a direct financing model, reducing an over reliance on bank credit. Banks have long been the main financing source of capital in China. Total outstanding bank loans were 123% of the GNP at the end of 2011 while corporate bonds were just 11% (Source NAFMII).
Since 2011, regulatory reforms have been implemented to accelerate the development of the Chinese bond market and the total debt issuance by Chinese non-financial corporates was CNY 853bn in the first half of 2012 and up from CNY 530bn during the same period last year.
5859 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 5958 A. Onshore China’s Corporate Bond Issuance, first-half volumes (in RMB billions)
Medium-term notes 1000 Enterprise and exchange-listed bonds
800
600
400
200
0 2010 2011 2012
Chinese New Banks Loans, first-half volumes (in RMB trillions)
4.86 4.63 4.17
2010 2011 2012
Funds Raised by IPOs on Chinese Stock Exchanges, first-half volumes (in USD billions)
38.7 36.7
15.8
2010 2011 2012
Source: PBOC, 2012
6061 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 6061 B. Offshore In addition, Chinese corporates and financial institutions are not only, among the Eurasian countries, the main issuers of the CNH bond market but also, on the international bond markets (USD, JPY and EUR).
a. Offshore RMB market Offshore RMB New Issues by Country since July 2010 0.4% 6.8% China 0.6% 44.4% Hong Kong 0.7% 0.8% Germany 1.2% France 1.2% US 1.3% 2.1% South Korea 2.6% UK 2.7% Singapore 3.3% Japan Russia India Netherlands 32.1% Australia Others b. International markets
G3 Currencies New Issues by Country (2012 YTD) 0.2% 2.2 % 0.5% China 1.6% 2.2% Others 9.9% 19.3% Taiwan Vietnam 4.1% Mongolia Sri Lanka 4.7% Indonesia Malaysia 10.8% ailand Singapore 19.1% Korea India 16.6% Philippines Hong Kong 7.3% 4.1% Source: Bank of China International (HK), 2012 Two recent illustrations - China Overseas Land & Investment Ltd (“COLI”) Major property developer in the PRC (rated Baa2 and BBB) COLI issued in November a total of USD 1 bn with 2 tranches (10 year: USD 700 m; 30 year: USD 300 m). The breakdown placement of 10 years tranche was: 79% in Asia and 21% Europe. And 30 years breakdown was: 83% Asia and 17% Europe.
6061 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 6160 - China Taping Insurance Holdings Co Ltd One of only four PRC insurers (designated as an important pillar in the growth of the industry) launched in November 2012 a 10 years USD 300 m bond issues. The breakdown placement was Asia 85% and Europe 15%.
II. The Sino-French Financial Cooperation
2.1 Paris EUROPLACE organization and missions
Paris EUROPLACE is the professional body, which supports the France-based financial services industry and promotes Paris as an international financial centre. It brings together and represents a great variety of international players active in the financial industry: issuers, investors, banks, insurance companies and financial intermediaries, as well as market Authorities. As a privileged counterpart with the European and French Authorities, Paris EUROPLACE contributes to accelerate the reforms to improve the Paris financial centre’s attractiveness.
Members of Paris EUROPLACE and its International Financial Cluster FINANCE INNOVATION
Investors Financial Institutions (Banks, Insurance Companies, Brokerage Firms, Trading & Clearing Platforms…) 14 Issuers 32 25 Ancillary Professions (law Firms, Universities, research & Rating & Communications Agencies, training nancial centres 19 30 Audit Firms…)
Professional Associations 29
81
SMEs
Paris EUROPLACE promotes the following activities:
• The attractiveness of the Paris financial marketplace Paris EUROPLACE seeks to accelerate government reforms needed to enhance the competitiveness of the Paris financial marketplace. Among its members, working groups have been created to position ideas, promote dialogue and develop concrete measures to be submitted to the relevant authorities.
6263 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 6263 • European Action Paris EUROPLACE actively contributes to research and projects on the financial market organization at the European level. It presents the position of market users based in France in view of implementing a competitive regulatory framework for Europe based on common regulation between and among European Union member states, a better integrated infrastructure, and a consolidated and homogeneous supervisory entity.
• International Promotion Paris EUROPLACE organizes International Financial Forums around the world to promote the strengths and opportunities of the French financial markets to international investors, issuers and financial intermediaries. Paris EUROPLACE also strengthens long-term ties with emerging financial centers through cooperation agreements (Bahrain, Dubai, Qatar Almaty, Moscow, Shanghai, etc.).
• Research in finance and financial services cluster FINANCE INNOVATION Launched in 2007, the financial cluster FINANCE INNOVATION develops high -added- value entrepreneurial and research projects in the financial sector. FINANCE INNOVATION has 5 main activities: development of small- and medium-sized enterprises (SMEs), research in finance, education, financial data and information, and the promotion of sustainable social and environmental innovation in finance.
Faced to the evolution and role of the debt capital markets in Europe and now in China, Paris EUROPLACE accelerated its cooperation with Chinese Authorities and professional organisations.
2.2 The Sino-French Financial Cooperation
Two agreements have been already signed by Paris EUROPLACE with Chinese authorities and professional organization:
A. 2010 Municipality of Shanghai/Paris EUROPLACE MOU
In December 2010, Paris EUROPLACE and the Shanghai Financial Services Office (FSO) of the Shanghai Government signed a Memorandum of Understanding (MOU) which opens a new area of cooperation regarding developments and business opportunities in financial and related sectors in Shanghai and Paris, such as: - encouraging and promoting dialogue and sharing experiences, - strengthening cooperation in the field of financial markets, - encouraging and supporting the cooperation between Paris and Shanghai financial institutions, and - strengthening research in the financial sector and the training of talents.
6263 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 6362 B. 2012 NAFMII/ Paris EUROPLACE MOU In April 2012, a Memorandum of Understanding was signed with NAFMII with the following objectives: - arranging visits and meetings of senior officials and staff, - cooperating in, or co-hosting, seminars and training programmes, - sharing economic and market information, - providing services to each other’s members, and - facilitating the academic community to boost their understanding about the markets
6465 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 6465 Conclusion
6465 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 6564 6667 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 6667 As stated by Christian NOYER, Banque de France’s Governor, the internationalisation of the Chinese currency initiated by China State’s Council, is the most important financial event of the decade.
Hong Kong has been the first financial centre outside Mainland China allowed in 2004 to collect offshore RMB deposits (CNH) and again the first place to set up in 2010 a fully fledged offshore market, equipped with a money market and an interbank market. Other offshore centres have emerged since but Hong Kong today the only place with a direct access to the onshore market through a designated clearing bank – Bank of China (Hong Kong). As such Hong Kong offshore market is bound to support and complement the development of other offshore markets. Under the supervision of the PBoC and the HKMA, a “monitoring structure” has been implemented to ensure that the conversion of CNY into CNH and vice- versa, will be used for trade settlement or to finance investments in China.
In addition, the CNH deposits accumulated in Hong Kong (and other Asian and European financial centres) by the companies participating in the Trade Settlement Scheme has led to the emergence of a CNH debt capital market, mainly used by Hong-Kong and Chinese issuers, but also by European issuers including French issuers,. In a sense, the CNH bond market could be considered as the “testing ground” for the onshore debt capital market, the Chinese economy gradually making the transition from a purely banking model to a market finance model.
Paris EUROPLACE’s immediate objective is to widen the understanding and opportunities offered by the RMB internationalisation to a larger scope of corporates including SMEs. In that respect, the banks active in Paris already have the capacity and expertise to offer all the RMB financial products available in Hong Kong in the European time.
The second objective is to accelerate the cooperation with Mainland Chinese and Hong Kong regulators but also with other current and future RMB financial centres.
All together, Paris, as a leading Eurozone financial centre, already demonstrates, as asserted by the Banque de France’s Governor Christian NOYER, that a strong base is in place to develop RMB business through trade settlements, offer financial services by banks active in Hong Kong and China, and an important pool of French corporates which are among the most active investors in China.
Finally, France being the Eurozone China’s main trade partner, it is obviously of the utmost importance that the Paris financial centre contributes actively and concretely to the RMB internationalisation.
6667 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 6766 6869 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 6869 Exhibits
6869 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 6968 7071 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 7071 EXHIBIT 1
Paris EUROPLACE Working Group on RMB Internationalisation
This questionnaire has been sent by Paris EUROPLACE, with the support of Banque de France, to assess the current RMB capabilities of French and Chinese banks active in Paris, to identify the current constraints and possible ways to support the RMB market development. Answers have been kept confidential.
1. Current activities of French and Chinese banks in RMB 1.1 RMB financial instruments and services already available (cash management, trade finance, corporate banking, trading…) 1.2 Current customers categories and specific needs (ie. retail customers, SME, corporates) 1.3 RMB funding (ie. deposits, interbank market, fx spot/swap, dim sum bonds issuance?) 1.4 Human resources dedicated to the RMB business in Paris/in the group. 2. RMB flows within the group 2.1 RMB activities geographical breakdown. 2.2 Circulation of RMB funds within the group (ie. repatriation to HK, or Mainland China…) 2.3 Does your group have a quota for investing/repatriating RMB funds onshore (ie. R-QFII…) 3. RMB volumes 3.1 Average daily volumes (breakdown by products and localization if available) 3.2 Average annual volumes (breakdown by products and localization if available) 4. Current constraints and liquidity issues 4.1 Current constraints and possible hurdles to the development of RMB activities. 4.2 RMB liquidity in Paris/in Europe. (ie. counterparties available during European time, bid-ask spread after the Hong Kong close ?). 5. Perspectives and proposals 5.1 Potential unsatisfied customers needs at the time 5.2 Expected development of your RMB activities in Paris/worldwide in the next couple of years (ie. volumes, types of products and services…) 5.3 Projects of the group related to the RMB, to the implantation of French groups in RMB financial centers (ie. localization of the RMB products desks, HR…) 5.4 What are the recommendations of your group and what would be the conditions for an optimal development of your RMB activities? (ie. proposals and conditions for the private sector, for the authorities)
7071 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 7170 7273 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 7273 EXHIBIT 2
The 2012 Paris EUROPLACE Survey
This survey was conducted on 20 of the most prominent French companies in November 2012 and sought to assess their usage of RMB and adoption of RMB products as well as the actual and potential role played by the Paris financial market place in that respect.
Questionnaire: A/ for importers and exporters active in Asia 1/ Do you currently use offshore RMB?
If the answer is YES
1.2 You are currently using RMB Y N n/a on your own imitative 100% at your partners’ request 27% 55% 18% Following your bank’s offer 9% 55% 36% 1.3 Using RMB allow you to Y N n/a satisfy the demand of partners 64% 27% 9% improve the pricing of products 18% 45% 36% gain a competitive advantage 18% 45% 36% follow the competitors 18% 45% 36% improve the hedging of exchange rate volatility 91% 9% avoid relying on a third party's currency 82% 9% 9% improve the cash management 36% 45% 18% 1.4 What could hamper the development of RMB settlement? With your partners Y N n/a your Chinese partners do not request it 27% 45% 27% pricing in RMB is more difficult 18% 64% 18% the administrative rules in China are more complex 36% 45% 18% During the implementation Y N n/a The handling is more complex for my company 27% 55% 18% The banks’ offer is not adequate 27% 64% 9%
If the answer is NO: 1.5 You do not use RMB because Y N n/a no operation with China 11% 22% 67% never heard that RMB settlement is possible 11% 33% 56% no request from Chinese partners 56% - 44% no banking offer 11% 33% 56% RMB is too complex to manage - 33% 67% no particular interest 33% 11% 56% lack of trust in the RMB - 33% 67% 1.6 Do you intend to use RMB in the near future? Y N n/a 60% 40% -
7273 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 7372 1.7 What could motivate your using the RMB? Y N n/a the demand of trade partners 67% 11% 22% the competitive pressure 33% 22% 44% the improvement of pricing power 44% 22% 33% a more accessible banking offer 67% - 33%
B/ Your banking needs
2. What are or what would be your banking needs in RMB? Y N n/a Corporate account 80% 10% 10% Forex services 85% 5% 10% Cross-border transfers 85% - 15% Documentary credit, documentary bill 40% 40% 20% International guarantees 35% 40% 25% Cash management services 65% 10% 25% Syndicated loan financing 15% 60% 25% Dim sum bond issuance 40% 35% 25% 3. Using RMB allow you to Y N n/a improve your cost of funding 50% 35% 15% accelerate your investments in China 50% 35% 15% optimize your cash management 45% 30% 25% support your commercial activity (trade settlement) 55% 20% 25% 4. Do you hold an offshore RMB account? And if yes, where? Hong Kong 58% - - Paris 50% - - Other (London, etc.) 0% - - 5. Where do you execute your RMB transactions? (multiple answers possible) Hong Kong 55% - - London 27% - - Paris 73% - - Other (Singapore, etc.) 27% - -
6. How would you compare the Paris offer with other offshore better worse not centers except Hong Kong (London, Singapour, Frankfurt, on par in Paris in Paris relevant etc.)? availability and visibility of banking offer in RMB 8% 25% 25% 42% RMB pricing - - 67% 33% RMB liquidity - 25% 42% 33% Processing time of RMB transactions - 17% 50% 33% Distance with decision centers of your company 46% - 23% 31%
7475 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 7475 EXHIBIT 3
2011/2012 RMB-denominated Bond Issues by French Companies A+ A+ BB+ N/A N/A N/A N/A Fitch BBB+ A A A A BB+ BBB S&P N/A BBB+ Issuer Rating Issuer A1 A1 Ba1 dy's N/A N/A N/A Baa1 Baa2 - Moo Yes Yes Yes Yes MTN? red red red red red red red ture G'tee Senior Senior Senior Senior Senior Senior Senior Struc - unsecu - unsecu - unsecu - unsecu - unsecu - unsecu - unsecu - Company Company Re- offer offer yield 9,000% 4,700% 3,000% 3,950% 4,150% 5,625% 5,000% 4,250% Re- offer offer price 99,117 100,000 100,000 100,000 100,000 100,000 100,000 100,000 pon Cou - 9,000% 4,500% 3,000% 3,950% 4,150% 5,625% 5,000% 4,250% 500 850 500 750 500 500 mil - Amt lion) 1 500 1 750 (RMB 6 850 Issued Issued 14 17 16 18 14 14 15 15 - Ma Date turity turity 19-avr- 10-oct- 14-nov- 28-juin- 19-sept- 19-sept- 06-sept- 09-mars- - Te nor 3 years 5 years 5 years 7 years 2 years 2 years 3 years 3 years Paris Paris bourg bourg bourg bourg bourg of the of bonds Listing Listing - Luxem - Luxem - Luxem - Luxem - Luxem Not listed Not Euronext- Euronext- of of Ex - - Pri Paris Paris Paris Paris Paris Paris Paris mary equity Private Private change change Company - ted tor in tor Issuer Issuer Kong, Kong, - pora France France France France France France France France Incor in Hong in Hong - Guaran 12 11 11 11 12 12 12 12 Date ment Settle - 19-avr- 10-oct- 14-nov- 28-juin- 19-sept- 19-sept- 06-sept- 09-mars- - An Date ment - nounce 13-avr-12 09-nov-11 21-juin-12 08-sept-11 08-sept-11 28-sept-12 30-août-12 01-mars-12 try tive nery Bank Bank Gases Gases Heavy Heavy mental mental - Machi - Indus Cement Services - Environ - Automo Industrial Industrial Industrial Issuer Renault Societe Generale Veolia - Environ nement Societe Generale Alstom Lafarge On Shui LiAir - quide LiAir - quide Total France
7475 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 7574 7677 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 7677 EXHIBIT 4
Issuing Offshore RMB bonds from Euroclear France
Connecting the European Issuers to the RMB market
Principles • RMB as an issuance currency in Euroclear France (ISO code CNY) • RMB positions can be held in Euroclear Bank : DVP settlement and payments in Euroclear Bank; • RMB (ISO code CNY) as settlement currency in Euroclear Bank • Thanks to the HKMA*’s account in Euroclear Bank the transfers to CMU members are allowed on a DVP basis • CMU members have subaccounts in Euroclear Bank via HKMA ** • FR ISIN will be eligible in CMU (upon demand of the CMU members) - RMB securities under French law can be delivered to international and CMU investors on a same day basis
FR ISINs denominated in RMB
EUROCLEAR EUROCLEAR Bank France
Lead manager or Lead-manager in EB Members of Trading Account the syndicate Euroclear Bank FoP DVP
CMUHKMA DVP CMU members
Cash Issuer
CMU members Process(All times in CET)
1. The securities are credited in Euroclear France on closing date (CD) 2. The Euroclear France accounting day starting on CD -1 at 8.00 pm, the Lead manager/dealer in Euroclear France or Euroclear Bank themselves (for lead-managers/dealers not having Euroclear France account and using Euroclear Bank (611) as a correspondent) receive the securities on CD-1 at 10.00 pm 3. The deliveries to Euroclear Bank participants including HKMA (as operator of CMU) can be input from CD-1 at 10.00 pm to CD at 6.55 am*** in order to be delivered to CMU members against CNY payment 4. Instructions can be input in advance for value date CD 5. Transfers between Euroclear Bank participants and CMU members can be done via internal DVP instructions (01P/02P) 6. Transfers between CMU members will be done in Euroclear Bank via internal DVP instructions (01P/02P) AND in CMU (internal instructions)
* Hong Kong Monetary Authority is the operator of CMU (Central Money Markets Units, settlement system of debt securities in HK) ** 40 CMU members subaccounts are opened in Euroclear Bank; a CMU members can open a subaccount in 1 week. *** 6.55 am (winter)/ 7.55 am (summer)
7677 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 7776 7879 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 7879 EXHIBIT 5
Paris, a unique euro financial services cluster for corporations and investors, based on one of the largest economy in the world
Paris is a unique business driven financial center for corporations, investors and intermediaries. Its growth engine is based on the robust French economy, the 2nd largest in Europe and the 5th one in the world. The Strengths of the Paris Financial Market are based on Strong Assets:
1. Paris is an International Business Center hosting 35 companies of the Global Fortune 500 Index: This attractiveness is regularly confirmed by international reports and studies: 35 French companies are among the 500 largest in the world - compared to 34 in Germany and 30 in the United Kingdom (GFI 500, 2011). France holds Europe’s largest pharmaceutical, aerospace and nuclear sector, and is the 2nd largest chemical sector as well as the 3rd largest agri-business and information communications & technology sectors in Europe.
2. NYSE Euronext is the world’s largest stock exchange. NYSE Euronext is the world’s largest stock exchange and NYSE Euronext Europe is the second largest stock exchange within Europe in terms of market capitalization and value of equity trading. A listing on NYSE Euronext Europe offers definitive advantages to international companies which operate in Europe providing international visibility, access to the world’s leading source of liquidity (as part of NYSE Euronext), and a high level of flexibility for investors.
3. Paris benefits from a large European asset management pool. Paris i s the Eurozone leader in terms of assets under management (€2.6 trillion), and is in 2nd position worldwide for its investment funds (€1.5 trillion). The key strengths of the French Funds Industry are confirmed by: − 4 French asset managers are among the world’s top 20 institutions: − 3 French global custodians (fund administration & custody) are in the top 10 in the global ranking of such institutions: − 31 French funds are high-performing Eurozone equity funds of the top 47.
4. A strong and resilient banking system. French banks have been resilient in a very challenging environment, thanks to the high quality of oversight and prudential supervision.
5. France is a key force in the European insurance market. According to the latest figures available, the French insurance market is the fourth largest in the world (6 % of worldwide market share), after the United States (33.8 %), Japan (15.2 %) and the United Kingdom (9.1%).
6. The Paris real estate market is the most attractive in the Eurozone. Despite continuing economic uncertainties, investment in the French real estate market during the first nine months of 2011 increased by 32 %.
7. Paris, an Open, Secured and Innovative International Financial Center. International investors hold 43% of the CAC40 index market capitalization and nearly 65% of the French government debt. And France is number 2 in Europe in terms of foreign presence, with more than 500 foreign banks and financial institutions domiciled in the Greater Paris Region.
7879 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 7978 8081 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 8081 EXHIBIT 6
Paris EUROPLACE RMB Working Group
Banque de France − Alexandre GAUTIER, Director, Market operations directorate − Pierre MAHIEU, Deputy head of Payment System Policy and Organisation Division − Christian MASSON, Financial Counsellor in the French Embassy in China − Philippe MONGARS, Deputy director, Market operations directorate − Benoît NGUYEN, Foreign Exchange and Market Monitoring, Market operations Directorate − Sophie PEREZ, Head of Foreign Exchange and Market Monitoring, Market operations Directorate
French Treasury, Ministry of the Economy and Finance − Thomas ARGENTE, Deputy Head of Savings and Financial markets Division − Stéphane CIENIEWSKI, Trade Commissioner, Consulate General of France in Hong Kong and Macau − Maylis COUPET, Head of Savings and Financial markets Division − Françoise KLEIN, Head of Asia and Oceania Bureau
Bank of China, Paris − ZHAO Hongtao, Head of RMB Operations − Philippe BOURGUIGNON, Head of the Financial Markets Department − PHAN Nhay, Managing Director
BNP Paribas − Julien MARTIN, Deputy Head of Fixed Income - China − Paul YANG, Country Head – Hong Kong
BPCE Natixis − Hari KRISHNAN, Global Head of Emerging Markets Trading
Crédit Agricole − Laurent FOUQUET, Chief Operating Officer for China − Yann MARHIC, Global Product Manager – Treasury − Xavier ROUX, Country Head - China − François-Xavier THOMAS, Managing Director, Head of International Corporate Banking, International Client Coverage
HSBC − Philippe HENRY, Deputy Head of Global Banking, Continental Europe, HSBC PLC − Pierre SORBETS, Head of Public Sector, HSBC France
ICBC (Industrial and Commercial Bank of China), Paris − XIAO Yuqiang, General Manager − YU Qide, Deputy General Manager − Rudy BENAYOUN, Treasury Trader
Linklaters, Paris − Gilles ENDREO, Partner, Capital Markets Department − Cenzi GARGARO, Partner, Capital Markets Department
Société Générale − Jean-Baptiste LANGNIER, Head of EM Business Development and Strategy − Anne MARION-BOUCHACOURT, Group Chief Country Officer for China − Sopanha SA, Senior Asia Economist, Economic Research Department − Florence THOMINE, Global Trade Product Manager
Paris EUROPLACE − Arnaud de BRESSON, Chief Executive − Nadine HUYNH, Communications Manager - China − Bernard POIGNANT, China Advisor − Karim ZINE-EDDINE, Head of Reasearch
8081 n The RMB Internationalization Paris, a hub for Europe The RMB Internationalization Paris, a hub for Europe n 8180 Contact: Paris EUROPLACE
39-41, rue Cambon 75001 Paris - France - November 2012 - November Tél. : +33 (0)1 49 27 11 14 Fax : +33 (0)1 49 27 11 06 www.paris-europlace.net Conception : Conception
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