Investment Immigration Hong Kong focuses on Hong Kong's economic news: With the cooperation of the Shanghai-Hong Kong Stock Connect, starting from November 17, Hong Kong will lift the current restriction of 20,000 Renminbi per person per day for Hong Kong residents.
On the afternoon of November 12, the President of the Hong Kong Monetary Authority, Norman Chan, announced that starting next Monday, recognized organizations will be able to conduct unlimited Renminbi exchanges for Hong Kong residents. Recognized organizations include licensed banks, restricted license banks, and deposit-taking companies in Hong Kong. Chan stated that lifting this restriction will make it more convenient for Hong Kong residents to participate in the Shanghai-Hong Kong Stock Connect and other Renminbi financial transactions. After the launch of the Shanghai-Hong Kong Stock Connect, investing in A-shares will become more convenient, and the demand for Renminbi exchanges is expected to increase accordingly.
The Chief Executive of the Hong Kong Special Administrative Region, Leung Chun-ying, expressed his anticipation regarding this development, stating that lifting the exchange limit will not only facilitate Hong Kong residents' participation in Renminbi financial transactions such as the Shanghai-Hong Kong Stock Connect but will also help further enhance Hong Kong's position as an offshore Renminbi business center.
Under the new arrangement, banks and other organizations handling Renminbi exchange transactions for Hong Kong residents will settle positions in the offshore Renminbi market rather than through the Renminbi clearing bank in the onshore market.
"The settlement of Renminbi exchanges for Hong Kong residents shifting from the onshore market to the offshore market is the most appropriate plan," Chan pointed out. Currently, the offshore Renminbi market in Hong Kong has a funding pool exceeding one trillion Renminbi, and the foreign exchange market for Renminbi also has considerable depth and scale. In the future, when banks exchange Renminbi for Hong Kong residents, there will be no issues settling in the offshore market.
The current limit of 20,000 Renminbi per person per day for cash exchanges by Hong Kong residents was established back in 2004 when Hong Kong banks launched Renminbi services. This was due to the requirement under the Clearing Agreement that banks provide exchange services for Hong Kong residents through the Shanghai exchange window for settlement and remittances to the mainland.
"The current structure involves Renminbi settlement under trade items, along with selective convertibility under capital items," Wang Ju explained to the 21st Century Business Herald, indicating that loosening the offshore exchange limit and relaxing onshore exchange regulations are entirely different. Under the current institutional arrangement, there are still controls on capital items, and the flow of Renminbi from the onshore market to the offshore market still occurs through settlement under trade items.
Other offshore Renminbi centers, such as London and Singapore, adopt a similar mechanism, where Renminbi exchanges are priced at offshore Renminbi exchange rates, and there are no established personal exchange limits.
"The Renminbi (funding pool) in overseas markets is the ultimate supply, and under limited supply conditions, it may lead to liquidity tightness," said Yang Yuting, a senior economist at ANZ Bank. However, this situation of tight offshore funding is believed to be a temporary phenomenon.
According to reports from the 21st Century Business Herald, by the end of September this year, Renminbi deposits in Hong Kong had reached 944.5 billion Renminbi, along with a total of 183 billion Renminbi in large negotiable certificates of deposit (CDs), bringing the total Renminbi funding pool to over one trillion Renminbi. Chan believes that Hong Kong's offshore funding pool is sufficient to meet exchange demands.
"The tightness of offshore funding will primarily manifest in Renminbi interest rates, including interbank overnight borrowing rates and time deposit rates," Yang Yuting believes. The demand for funds will drive interest rates up; recently, Hong Kong's overnight borrowing rates and Renminbi time deposit rates have already risen, but the impact on Renminbi exchange rates is limited. Exchange rate fluctuations will primarily depend on the central bank's pricing, and there will not be significant price differences between onshore and offshore Renminbi exchange rates.
Wang Ju pointed out that currently, Renminbi deposits in Hong Kong are primarily corporate deposits, and with the lifting of the exchange limit, Renminbi deposit rates will increase, leading to a corresponding rise in individual Renminbi deposits.