Taiwan may accumulate 1 trillion yuan (US$161.49 billion) in deposits within five years, overtaking Hong Kong as the largest yuan market outside China — if regulators ease rules to retain yuan liquidity, Standard Chartered Bank said yesterday.
“Taiwan can replace Hong Kong as the world’s number one offshore yuan market given the rapid accumulation of yuan deposits,” Standard Chartered’s Taipei-based economist Tony Phoo (符銘財) said.
Phoo, who predicted last year that yuan deposits could reach 150 billion yuan this year, said the volume could soar to 1 trillion yuan in five years after reaching 48.32 billion yuan in both onshore and offshore accounts at the end of last month, less than two months after the government allowed domestic banking units (DBUs) to conduct yuan businesses that were formerly restricted to offshore banking units (OBUs) alone.
The numbers lend support to yuan’s appeal with Taiwanese, even though the central bank caps yuan conversion at 20,000 yuan per person per day, Phoo said, adding that the deposit pool remains on course to hit his forecast for this year.
The trend shows yuan deposits in Taiwan may outpace the pool in Hong Kong that now stands at 600 billion yuan, or 15 percent of overall deposits, he said.
Taiwan could take lessons from Hong Kong in dropping credit ratings requirements for yuan-based bond issuers and allowing Chinese firms to list in the local bourse, Phoo said.
“Regulatory liberalization explains why 90 percent of global yuan products are presently concentrated in Hong Kong,” he said.
More than 50 percent of bond issuers in Hong Kong do not retain credit ratings services, which are costly for small and medium-sized enterprises, Phoo said.
Chinese firms, which account for 50 percent of bond issuers in Hong Kong, can help invigorate Taiwan’s capital market, if the government gives the green light, he said.
Taiwan also needs to quickly establish back-flow channels for yuan through participation in RMB Qualified Foreign Institutional Investors (RQFII) and RMB Foreign Direct Investment (RFDI), he said.
Otherwise, Hong Kong will continue to maintain first-mover advantages, especially in breadth and depth of yuan liquidity pool and assets, he said.
The government has indicated that it has plans to develop Formosa bonds (寶島債) as part of the attempt to build an offshore yuan center, but has not agreed to abandoning credit ratings requirements for issuers.
Regulators are also working on regulatory relaxation that would allow reputable Chinese companies to list on the local bourse.