London is the “offshore renminbi centre of choice in the west,” according to Wenjian Fang, chief executive of Bank of China in London, speaking at a press roundtable with the City of London renminbi initiative on Thursday. “In the long run, London will be much stronger than Luxembourg... if you look at what London has achieved in the last two years, it has been rapid,” says Fang. “The key thing for the development of the fixed-income market is the investor base. And London has the unique advantage of having such a large investor base.”
The renminbi market has already had an encouraging start to the year, driven in part by the Bank of China London branch, which became the latest bank to issue a renminbi-denominated bond out of the City. At Rmb2.5 billion ($413 million), the bond is the largest of its kind out of London so far.
Ashmore Group, an emerging market investment manager, was awarded the first RQFII licence out of London on January 7, the first investor outside Hong Kong to get an RQFII licence.
Two days later, CSOP, a Hong Kong-based asset management company, became the first renminbi exchange-traded fund listed on the London Stock Exchange, debuting with more than $230 million in assets after strong pre-IPO demand from investors.
One of the main obstacles for the development of the renminbi, however, is that some fund managers and corporate institutional investors still haven’t given a large enough allocation to renminbi assets, says Fang. “But inevitably this will increase and London’s potential will come into full play at that time,” he says.
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This announcement comes despite the fact that three of China’s largest banks – China Construction Bank, ICBC and the Bank of China itself – chose to open their official European headquarters in Luxembourg, fuelling speculation that the continental European city is outcompeting London in the bid for Chinese capital.
At the end of the second quarter 2013, Luxembourg had the largest pool of renminbi deposits in Europe at about Rmb40 billion ($6.5 billion); the largest renminbi loan portfolio at Rmb62 billion; and the largest trade-finance volume at Rmb52 billion, according to consultancy PwC.
And according to Banque Centrale du Luxembourg, Luxembourg is also the largest renminbi investment fund centre in Europe, with some Rmb214 billion of assets – including debt, equity and other instruments – held in Luxembourg-domiciled investment funds.
“We don’t see London against everybody. Of course there is competition between financial sectors, but there is strong collaboration between them,” says Mark Boleat, chairman of the Policy and Resources Committee of the City of London, who chaired the roundtable. “In the last three months I have been to Luxembourg and to Singapore. In both jurisdictions the talk was much more about the developing renminbi market globally and financial centres all playing a part in that.”
London has made great steps to court Chinese policymakers. In October 2013, London overturned apparently restrictive policies that discouraged Chinese banks from opening retail banking branches in the UK. And in June 2013, the Bank of England, under pressure from the City, had signed a currency swap line agreement with the People’s Bank of China, which appeared out of the question just over a year ago.