The internationalisation of the Renminbi
HE Antony Phillipson's speech at the Asia Securities Industry & Financial Markets Association (ASIFMA) Renminbi conference in Singapore.
The British High Commissioner to Singapore, Antony Phillipson said:
Thank you very much. I am delighted to be here today.
Many thanks to ASIFMA for organising the event and inviting me to speak.
Very pleased to see strong British involvement in this event, including remarks earlier in the day by Mark Boleat from the City of London and sponsorship from a number of British organisations.
When I was invited to speak I must say that I took a look at the list of other speakers, and indeed the topics and wondered quite what I could contribute from the perspective of the British High Commissioner.
But there were three reasons why I wanted to take up the opportunity I had been offered, although I remain rather relieved that there is no Q&A…
The first reason is because it gives me a chance to set out the context for the work that the British government, in partnership with the financial services sector, has done in the past 4 years or so on positioning London as a hub for offshore RMB trading.
In the wider diplomatic world there is often a debate about whether policy ought to be based on interests or values. Many argue that accepting a world founded on real politik is not good enough. We should aim higher than that.
But in the world of international finance I see less of such a debate. We live in a world of real ekonomik if you will.
One in which the rise of Asia poses challenges, but also enormous opportunities both directly in terms of our trading and investment relationships with particular countries and markets, and also indirectly in terms of the overall impact on the global economy.
And in both those contexts it certainly seems to me, admittedly as a diplomat who studied history, so not an expert in international finance, wholly obvious that the internationalisation of the Renminbi (RMB) is one of the most significant developments to affect the global economic and financial system in recent years.
Since the current British government came into office in May 2010 a lot of work has been done to set out an industrial strategy that rebalances the UK economy and develops a partnership between business and government in 11 key sectors that will form the building blocks of an economy that is fit for purpose and fit for the future.
In particular that means supporting companies in those sectors to enhance their trade performance, and to make the UK the most attractive possible location for high quality international investment.
One of the eleven sectors is professional and business services, and a key component of that sector is financial services.
It’s not hard to see why. London has established itself as the leading global financial services centre. 2 million people are employed in financial and professional services and the sector generates almost £200bn in gross value added to the UK economy.
In terms of its importance as an exporter, in 2012 a sectoral analysis by the Department for Business Innovation and Skills included figures that tell the story rather well, although they were 2010 figures, and showed that financial services exports were worth £47.58bn, and accounted for 7.4% of UK exports that year but almost 18% of world exports in the sector.
To use a term that is very familiar to those who live in Singapore that is what is called punching above your weight….
The net result is that the most recent figures from the City UK show that the financial and related professional services sectors recorded a trade surplus of £61bn in 2013.
So that’s why the sector matters and why it is one of the 11 singled out for special attention in the Government’s industrial strategy.
The second point I want to cover leads on from the industrial strategy and its emphasis on a partnership between government and business.
In the UK, I think it is fair to say that the term industrial strategy has at times been a rather loaded term.
Many, indeed, have argued that government should not seek to play a role in business, we should ensure you have a stable, preferably low, tax base and a well educated workforce and leave you to it.
To echo an earlier point I don’t think that’s realistic.
The fact is that it’s not just the UK government that will have an impact on the ability of UK firms to succeed in the global economy.
And, like it or not, there will always be a demand for some form of regulation of some form or other.
So government must play a role, but I entirely accept that it should be born of an understanding of the way business works and it should be fair, open and transparent in what it is doing.
In short, there needs to be an appropriate partnership between government and business, at home and overseas.
And I think you would be hard pressed to find a better example of how this can work, and how it has worked to the benefit of UK business than the efforts to establish London as a leading offshore hub for RMB trading.
Let me just quickly touch on the key developments in the last two and half years.
At the UK-China Economic and Financial Dialogue in 2011 the Chancellor, George Osborne, and Vice Premier Wang Qishan agreed to support the development of the offshore RMB market in London, part of an extensive programme of cooperation between the two countries on financial sector development.
Although both the UK and China believe the development of the offshore RMB market should be, and is, private sector led this political agreement was critical in laying the foundation for the market’s development.
Cooperation between the two governments is focused on building confidence, ensuring obstacles to the market’s development are addressed, and that the right regulatory frameworks are put in place.
Since this political agreement was reached the RMB market in London has grown exponentially.
There’s been a dramatic rise in RMB foreign exchange and trade finance volumes in London in the last few years.
HSBC issued the first RMB bond in London in April 2012 – the first RMB bond outside of China and Hong Kong, a major milestone.
Soon after that came the first Chinese bank to issue an RMB bond in London, China Construction Bank.
In fact 3 of the 4 largest Chinese state banks have now issued RMB bonds in London.
Other major developments include the launch of a London-Hong Kong RMB Forum…approval last year for UK firms to invest RMB in mainland Chinese financial markets…a currency swap agreement between the central banks of UK and China – the first G7 country to do so - and the news that the UK and China are jointly exploring the possibility of an RMB clearing bank in London.
Just last week, the International Finance Corporation (IFC) issued a 1 billion RMB bond in London. It is the first RMB bond to be issued in London by an international financial institution and will be listed on the London Stock Exchange.
The result of all this is that almost two thirds of all RMB payments outside of China and Hong Kong now take place in London and 28% of all international RMB payments are made in the UK, the most outside Hong Kong and mainland China.
Recognising London’s role as the Western centre of offshore RMB trading, the Chancellor announced while he was in Hong Kong three weeks ago that we will be hosting the first International RMB Conference in London this summer…..
….And, again emphasising the importance of the private sector in driving this process, it will be supported by an array of British, Chinese and International Banks from HSBC to ICBC, from Standard Chartered, RBS and Barclays to Bank of China and the China Construction Bank, from Citi, JP Morgan and ANZ to the Agricultural Bank of China the Bank of Communications and others
And just to conclude on this point, and tying it back to my earlier comments about the broader context of rebalancing the UK economy through enhanced trade and investment, the development of the offshore RMB market in London both highlights and facilitates deepening UK-China trade and investment ties.
UK exports to China are growing rapidly and an increasing amount of these will be denominated in RMB. In recent years we have also seen a significant jump in Chinese investment into the UK, given the UK’s welcoming approach to foreign investment, including from China.
This includes, of course, the announcement during the Chancellor’s visit to China late last year that they would invest in UK nuclear power generation.
The third and final point I wanted to touch on is the one that is closest to my day job, and concerns what all this means for cooperation between the UK and Singapore.
While the UK Government has certainly worked hard to establish London as a leading hub, we also believe that other major RMB centres such as Hong Kong and Singapore, have significant roles to play in this process.
Significantly, as with the broader financial relationship between London and Singapore, we see them as complementary.
London and Singapore are 2 of the 4 largest international financial centres, and 2 of the 3 major global foreign exchange centres.
There are elements of competition, of course, but for the most part both are helping to grow the overall size of the pie.
Each centre has its own unique advantages, as well as a different geographic focus - London is positioned as the leading offshore RMB centre in Europe/the West, Singapore for SE Asia.
Reflecting this scope for partnership, during the Chancellor’s visit to Singapore a little over 2 weeks ago he and Deputy Prime Minister Tharman agreed that we should establish a private sector working group on offshore RMB and a new bilateral financial dialogue.
The details and membership of the RMB working group are still being fleshed out.
But the idea is to improve the commercial linkages between us as offshore RMB centres, and potentially with Hong Kong as well, and to exchange views on product development and regulatory issues.
For example, both the UK and Singapore have strengths in commodities and asset management – with Singapore also receiving approval late last year to invest RMB in mainland Chinese financial markets.
The new financial dialogue framework announced by the Chancellor and DPM Tharman is aimed at boosting cooperation on domestic and international financial, regulatory and market development issues.
As the financial capitals of Europe and ASEAN and two of the world’s leading international financial centres we share many of the same views on financial regulation, believing that in the post-crisis world tough, but fair, financial regulation is a value proposition to international financial firms.
Singapore is a G20 outreach country and DPM Tharman chairs the International Monetary Financial Committee, making it a very important voice in the international debate on financial regulation.
Both the dialogue and the RMB working group will facilitate the further deepening of the already strong commercial links between the UK and Singapore financial sectors.
In this context we are also looking forward to the completion and ratification of the EU/Singapore Free Trade Agreement which we fully expect to benefit a wide range of UK companies ranging from new entrants to the long established players like Standard Chartered.
Similarly, many Singaporean firms have established their European headquarters in London.
For example, while the Chancellor was in Singapore last month he announced Fullerton Fund Management’s intention to do just that.
Ladies and Gentlemen, thank you again for the opportunity to speak at your event.
In summary, the UK Government is a strong supporter of the internationalisation of the RMB, and we certainly see it as something to be welcomed, not feared.
It is only right that the RMB plays a more significant role in global trade and financial relations, commensurate with China’s increased economic weight in the world economy.
The process of internationalising the currency has also involved a series of economic reforms in China that will benefit that country, by helping to achieve the authorities’ stated aim of rebalancing growth more towards domestic demand. These reforms will also benefit the global economy.
For the UK, looking to be successful in that global economy, as we have always aimed to be, the financial services sector will remain a powerful force for job creation and revenue generation, and the government will support them accordingly.
As we go about making our plans a reality we also have the opportunity to take the partnership between the UK and Singapore to a new level. I think that presents an exciting prospect for us all.
Financial cooperation, including on offshore RMB, will remain at the heart of the trade and investment ties that we have built over almost 200 years.
And as we look forward I am delighted that many of the companies represented here today will be actively involved in the process of delivering our future prosperity.
Thank you very much.
Further information
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Asia Securities Industry & Financial Markets Association (ASIFMA) website