Tag Archives: China

Hong Kong – Adaption to the Chinese Renminbi (RMB) currency

During a speech on the development of the renminbi market in Hong Kong at the China Economic Development Forum, the Secretary for Financial Services and the Treasury, Professor K C Chan, said that RMB internationalization represented the ‘most exciting topic’ in the development of Hong Kong’s financial markets.

He pointed out that RMB internationalization “represents a policy choice in the gradual process of the opening of the capital account. There is no question of whether the capital account will be liberalized. It will. The only question is when.”

He confirmed, however, that: “Even in the current stage of development, if the capital account is closed or mostly closed, there are still many benefits associated with RMB internationalization. As RMB is becoming accepted as an investment asset, in addition to a currency for trade settlement, it leads to a diversification of currency risks for investors as well as Mainland borrowers.”

“The current approach to RMB internationalization is through the encouragement of an offshore market,” he continued. “Although the trade settlement in RMB can be done through correspondent banking arrangement between domestic banks and foreign traders, we won’t have the benefits of having an offshore market that allows foreign traders and investors to trade and invest in RMB. An offshore market will allow market forces to work to build up the demand for RMB as a currency for trade settlement as well as a currency for investment.”

“Hong Kong is the most natural and the most competitive offshore RMB market in our country,” he concluded. “We have been a testing ground for new products and new ideas for China and now we are a testing ground for financial market reform for the country. There is much cooperation between the regulators on the Mainland and Hong Kong, and we can ring-fence the market with the capital flows being regulated to safeguard the financial security of the nation.”

Chan added that he expects there will be further development and more offering of investment products, including RMB-denominated bonds, in Hong Kong, which will contribute to “a much more interesting and diversified investment product market in Hong Kong. These will contribute to the growth of the offshore RMB market.”

To date, there have been 38 RMB bond issues, with a total issuance of over RMB 80bn. The offshore RMB bond market has taken off with the issue of so called “dim sum bonds” issued by a large range of issuers and available to institutional investors. The issuers range from Chinese corporations to bond corporations of foreign agencies.

Chan said that a base case forecast puts the issuance of offshore RMB bonds at RMB 60bn in 2011, as against RMB42bn last year, which would bring the total outstanding “dim sum bonds” to over RMB 100bn.


International transport – No taxes if China based

International transport services (Shipping, Airlines  etc.) incorporated within China have been granted an exemption from business tax under a notice issued by the Chinese government.

The Notice, issued jointly by the Ministry of Finance and the State Administration of Taxation, applies to revenues generated from international and regional routes, and applies retroactively from January 1, 2010.

In a statement made to the Hong Kon
g Stock Exchange, Air China said that, based on actual air traffic revenue earned from international and regional routes, the airline will obtain an estimated benefit of approximately CNY549m (USD80m) for 2009.

Air China stated that it anticipates a consolidated tax rate of 3.21% in 2009, including the business tax, urban maintenance and construction tax and education surcharge.

The exemption applies to any firm or individual that provides international delivery services, including shipping companies, according to the ministry of finance website, and any tax already paid would be refunded.

Cosco Shipping Co., a unit of China Ocean Shipping (Group) Co., also announced an expected CNY42m saving for 2009 from the tax exemption.