Banking ties between London, China paying off
Updated: 2015-03-06 07:48
By Cecily Liu(China Daily Europe)
London's attempt to become a leading renminbi offshore center has gained traction in recent years thanks to the expansion of Chinese banks, says Mark Boleat, policy chairman for the City of London.
In 2014, China Construction Bank was appointed as the official renminbi clearing bank for London, a big step forward in facilitating smoother transactions between the city's offshore renminbi activities and onshore activities in China.
In the same year, two Chinese banks, Industrial and Commercial Bank of China, and CCB, both received regulatory approval to open branches in London, allowing them the financial freedom to conduct more activities compared to the subsidiary status they previously operated under.
Mark Boleat, policy chairman for the City of London, says he feels confident about the great potential for Chinese banks to grow overseas. Cecily Liu / China Daily
Boleat's team at the City of London also participated in the process of helping Chinese banks and other international banks lobby for permission to open branches in London, which became impossible after regulation tightening following the 2008 financial crisis.
He says now that Chinese banks can participate in more financial activities in London due to their establishment of branches, they will move away from their traditional business of serving Chinese companies to serving all customers.
"So far Chinese companies have mainly facilitated business deals and contracts between China and the UK, and that is an obvious benefit of having them here, and they do add to the wide range of banks in London.
"But the other thing they bring is expansion and they are beginning to work more with other banks and we expect to see them more involved in the British banking market," Boleat says.
An expansion of customer base for Chinese banks would give them more international clout, which is in line with the goals of the Chinese government and the country's banks, he says. He adds that Chinese banks are currently large in China but small everywhere else, a potential advantage for their overseas expansion.
Boleat says one area Chinese banks can develop businesses is in infrastructure, which requires large capital financing.
"There are many infrastructure and power projects in the UK. Chinese banks know they have to go well beyond the corporate market, so this can be a good starting point," he says.
Chinese banks are cautious in how they expand, which is encouraging, he says.
"They are not going to rush in and make lots of mistakes. Operating in the UK is different from China, and they'd want to employ local staff and advisers," he says.
To take on these additional tasks, Chinese companies need to be price competitive and conduct their business securely, he says.
He advises Chinese banks to operate with an international mindset by employing foreign staff both in overseas operations and headquarters.
London's attempt to develop an offshore renminbi center started in 2011 when then Vice-Premier Wang Qishan welcomed private-sector initiatives for the development of an offshore renminbi market in London in meetings with British Chancellor of the Exchequer George Osborne.
Boleat's team has been at the forefront of the "private sector-led initiative" in devising a workable plan to make the City of London's grand ambition technically possible. He and his staff have established a working group that regularly meets to discuss ways to advance this initiative. Among the working group are representatives from several Chinese banks.
According to the latest City of London statistics, London's total trade finance rose 79 percent over the second half of 2013 to 26.5 billion yuan ($4.14 billion, 3.73 billion euros).
Overall forex activity in renminbi products rapidly increased in the first half of 2014. Total volumes of renminbi forex trading more than doubled (up 116 percent) over the record high in the second half of 2013.
In the first six months of 2014, total deliverable renminbi forex business rose by 127 percent, giving a total average daily volume of $42.4 billion.
Boleat says he feels confident about the great potential for Chinese banks to grow overseas because they are relatively small internationally, and were not affected as badly as many other banks by the 2008 financial crisis.
Looking back at London's growth of renminbi businesses, Boleat says now that the required infrastructure for an offshore renminbi center is in place, the next step is for trade and financing volumes to grow.
"What we've seen is a continued rapid expansion of the market. Now that there is familiarity we expect volumes of business to grow," he says.
Boleat adds that he believes the increasing renminbi activities and development of infrastructure in other European centers will help to complement London's offshore renminbi activities.
"We welcome that. The more business there is in Europe, the more there is business in London," he says.
(China Daily European Weekly 03/06/2015 page14)