The warning, which came in the form of a statement on the Hong Kong Monetary Authority’s website, is being seen as an indication that authorities are growing increasingly concerned about the potential for unscrupulous dealers to take advantage of exchange rate and interest rate differences that exist between mainland China and Hong Kong, without ensuring that such trades have been done correctly – that is, within the bounds of China’s currency control restrictions.
In its statement, the HKMA said that companies planning to engage in renminbi trades must see to it that all such transactions are eligible for position squaring with the RMB Clearing Bank. To do this, they must ensure that all so-called trade transactions “are merchandise trade transactions”, and that such merchandise trade transactions are “cross-border, with one leg of the trade touching the mainland, as evidenced for instance by the delivery of goods to or from the mainland, or having a trading partner located on the mainland”.
In addition, “the timing and sequence of the RMB conversion conducted by customers and the delivery of goods should be consistent”, the HKMA added in its statement.
The regulator noted that those trading in renminbi should also “stay vigilant” to the possibility for cross-border merchandise trade transactions that have been artificially structured in order to “round-trip” money through Hong Kong, or other locations outside mainland China, and then back into mainland China again.
If transactions are found not to conform with the regulations, those who have enaged in them “will be asked to unwind the RMB position squared with the RMB Clearing Bank”. Repeated instances of non-compliance may result in suspension of the right to use the RMB Clearing Bank for squaring renminbi transactions.
Popular currency
The HKMA’s warning comes as interest in the renminbi continues to grow. As reported, Bank of America Merrill Lynch recently unveiled a so-called Dim Sum Index to track the performance of the growing market for renminbi-denominated offshore bonds in Hong Kong.
Designed to , the index covers about half of all outstanding debt denominated in the Chinese renminbi (RMB) market in Hong Kong.
The renminbi trade in Hong Kong – known by the "dim sum" nickname because of Hong Kong’s association with dim sum – has taken off as investors see the Chinese currency as a safer bet than many others. This enthusiasm has coincided with China’s decision to make the renminbi one of the world’s main currencies, rivaling the dollar.
In addition to bond funds being launched by investment houses like Barclays,Allianz GI, HSBC Global Asset Management, AllianceBernstein and Stratton Street, a number of corporations have also issued bonds in renminbi. Among them have been such quintessentially American companies as Caterpillar and McDonald’s. In April, Hong Kong saw the first-ever renminbi-denominated initial public offering outside mainland China take place, with the flotation of Hui Xian, a Chinese property investment trust.
According to a story on the website of International Adviser’s sister publication, Portfolio Adviser, the RMB-denominated dim sum bond market in Hong Kong has almost trebled in value since the start of the year, to $16.2bn.
