The Chinese yuan may become fully convertible in 2017, providing ample business opportunities for Hong Kong, Taiwan and other places aiming to become offshore yuan trading hubs, HSBC PLC’s top executive in Hong Kong said in Taipei on Friday.
“We expect yuan to be fully convertible in 2017 in terms of meeting trade settlement and investment needs,” said Anita Fung (馮婉眉), HSBC Hong Kong chief executive officer.
Full convertibility comes when people have free and easy access to yuan for any purpose, and the market is both transparent and accountable, she said.
Moves by the Chinese government to increase exchange rate flexibility and simplify transaction processes have changed the dynamics of cross-border yuan business, with the number of firms using the yuan dropping significantly on expectations that the currency would appreciate, Fung said.
Increasingly, real demand — from exchange risk management and operational convenience — is underpinning cross-border yuan transactions, she added.
At present, only 12 percent of cross-border trade in China is settled in yuan, Fung said. The ratio may rise to more than 30 percent in 2015 since more than 50 percent of Chinese companies are willing to offer price discounts in return for using yuan to settle trade, she said, adding that the yuan may grow to account for 50 percent of trade settlements in the Asia-Pacific region during the same period.
Taiwanese exporters should be incentive to use yuan for trade settlements since China is the nation’s largest trading partner, accounting for 40 percent of its outbound shipments, Fung said.
All these figures lend support to active yuan convertibility, she said.
Cities and financial companies in the region should cooperate rather than compete with each other while yuan’s internationalization pans out, the chief execuvite said.
“The yuan business will grow exponentially in the foreseeable future as China gains power in the global economy and concerns that Taiwan or Singapore may catch up with or overtake Hong Kong in the yuan market are unfounded,” Fung said.
The pie is so large that it will take a long time before the market turns into a zero-sum game, she said.
In addition, thanks to early-starter advantages, Hong Kong is already a well-established offshore yuan market in terms of depth and broadness. Also, having Beijing’s support will help the territory secure its leadership position in the market, Fung said.
However, Taiwan has still made impressive progress in developing an offshore yuan market, judging by the rapid accumulation of yuan deposits and the emerging yuan debt market seen over the past four months, Fung said.
Ultimately, even though some central banks have voiced plans to build positions, it will take a long time for yuan to become a reserve currency, she said.
This story has been updated since first published