Marketing Info

City of London plans to develop $10 trillion Chinese hub

(Bloomberg) — Britain’s ties with China may be on low volatility, but China Construction Bank Corp’s City of London outpost is banking on steady financial flows between the two countries.

The branch is the only renminbi clearing bank in the UK, making it an essential conduit for potentially staggering flows of Chinese money and investments. It has approved nearly 64 trillion yuan ($10 trillion) of transactions since 2014 – the largest volume outside Asia – and its top UK executives are planning the development.

Yang Emin, who has run the UK operations of China’s second-largest lender since 2018, said in an interview last week that he is targeting double-digit clearing volume growth in 2022, as it grew 18% last year to $11.9 trillion. Yuan was gone. He also expects the business of servicing Chinese companies listed in London to grow.

“Hong Kong has embarked on a path that can be largely replicated by London,” he says, noting the existing Shanghai-London stock connect – which enables Chinese firms to list in the UK and On the contrary – a similar arrangement for trading bonds could eventually open the door.

Their ambitions are good news for the City of London, which seeks to burnish its credibility as the international finance hub of choice, now that it sits outside the European Union. The UK government has long sought to attract Chinese investment, a process that began in 2014 with allowing the CCB to provide offshore yuan clearing facilities in London and in 2016 to issue 3 billion yuan of bonds in London , the first sovereign RMB bond issued outside China and Hong Kong.

Mood music has soured somewhat in recent years, with British lawmakers increasingly wary about close ties with China. Britain will join countries including the US and Australia in boycotting the Winter Olympics in Beijing amid growing criticism of China’s human rights record, over diplomatic crackdown in Hong Kong and the human rights abuses facing the Uighur minority.

But Yang is hopeful on the outlook for closer financial ties, adding that the UK could encourage more investment, that is, to allow renminbi bonds to be accepted as collateral in UK markets. This could increase the amount of renminbi holdings and promote more trading in all types of yuan assets.

“We have discussed collateral inclusion several times with UK authorities over the years, I hope they can sense our sincerity and act quickly,” said the 56-year-old Harvard graduate.

CCB provides foreign exchange and clearing services for four Chinese listings, including Hutai Securities Company and China Pacific Insurance Group Company in London, and Yang would welcome more dual listings in London, although other options are on the rise. Last month, the China Securities Regulatory Commission announced the expansion of the Stock Connect program to eligible listed companies in Germany and Switzerland, paving the way for such listings elsewhere in Europe.

Hong Kong-listed shares of China Construction Bank, which has a market value of about $193 billion, are down about 3% over the past year.

renminbi minnow

And London remains a relative small when it comes to offshore renminbi trades. Hong Kong dominates three quarters of the market with the UK with 6.6%, ahead of Singapore’s 3.3% share, according to data compiled by the Society for Worldwide Interbank Financial Telecommunication, or SWIFT.

This is a familiar challenge for Yang, who spent his early career at the CCB promoting the use of renminbi interest rate swaps, a common hedging tool in global markets that did not exist in China until 2006. Yang said he found himself pitching the products over and over again. His tenure as Deputy General Manager of Business at CCB’s Beijing Headquarters.

Their current offices – sitting in the shadow of Gherkin and NatWest Tower – have approximately 130 employees who provide services ranging from corporate banking to clearing. They say they have no plans to expand into investment banking right now, instead relying on CCB’s Hong Kong branch to provide the services they want to customers.

Yang also noted that investors’ appetite for a wider range of Chinese properties, including real estate investment trusts, or REITs, is growing. Even China’s escalating asset debt crisis hasn’t dented interest, he said, noting Evergrande’s troubles are a sign of a mature market.

“Some investors got burned, but in the long term I think it’s a good thing to be free from the expectation that the Chinese government will always bail out these firms,” ​​he said. “As China transitions into a more market-driven space, requiring foreign investors to accept China’s bonds as default, corporates as large as Evergrande could collapse.”

He struck an equally optimistic note on the prospects of the yuan as China’s central bank eased a broader trend of raising interest rates.

“It’s a vote of confidence,” Yang said, noting that business opportunities would arise. “Change is good, change brings opportunity.”

– With assistance from Wenjin Love, Rainn Lee, and James Boxell.

© 2022 Bloomberg LP

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