Currency is a capital affair
Updated: 2015-06-19 06:59
By Cecily Liu(China Daily Europe)
London plays leading role in internationalization of renminbi
The growth of offshore renminbi activities and expansion of Chinese financial institutions in London are helping the city to maintain its competitiveness as a financial center, says Mark Boleat, policy chairman of the City of London Corporation.
The rapid growth of Chinese banks, insurance firms, law firms and other financial institutions in London has been unprecedented in recent years, contributing to the diversity that characterizes London's financial center, Boleat says.
"Renminbi businesses are very important to London. In volume terms they are still small in relation to overall financial activities, but it helps to keep London as a leading financial center so that businesses know they have the choice to raise money in renminbi in London," he says.
Boleat became policy chairman for the local government responsible for London's financial district in 2012, and since then the city's offshore renminbi activities have taken off.
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), according to official figures.
Overall foreign exchange activity in renminbi products rapidly increased in the first half of last year. Total volume of renminbi foreign exchange trading rose 116 percent over the record high in the second half of 2013. In the first six months of last year, total deliverable renminbi foreign exchange business rose 127 percent, giving a total average daily volume of $42.4 billion.
Such achievements highlight the strong market demand for offshore renminbi business in London. The City of London has led private sector initiatives in the British capital to promote London as an offshore renminbi center since 2011.
Milestone developments such as the establishment of a renminbi-sterling swap agreement in 2013 and the appointment of a renminbi clearing bank in London in 2014 received the lion's share of attention, but Boleat says the steadily increasing volume of businesses incorporating renminbi into their accounting systems are just as important.
"What's important is the continuation in development of London's renminbi market. It is important for businesses that have traded with China for years but still use dollars in their invoicing to consider using renminbi so they can get a better deal. We are seeking to help businesses understand these benefits."
Boleat's team at the City of London has also taken part in the process of helping Chinese banks and other international banks lobby for permission to open branches in London, which became impossible after regulatory tightening following the 2008 financial crisis.
Although regulators emphasized that the rule changes were not made at the behest of Chinese banks, they benefited enormously. Last year Industrial and Commercial Bank of China and China Construction Bank both received approval to open branches in London, allowing them to conduct more lending and financing activities compared with the subsidiary status under which they previously operated.
Boleat says he feels proud of being able to help Chinese banks receive branch status applications, but also says Chinese banks are still on a steep learning curve to become sophisticated financial firms.
While most Chinese banks' first step of internationalization follows the international footsteps of their existing Chinese clients, in the future they should aim to compete alongside other global banks on non-China related business.
"When Chinese banks come to tell us about their business, it's about size - thousands of branches, sophisticated computer systems, and so on, as opposed to being market leaders," Boleat says.
"They may be market leaders in China, but the real challenge is about being market leaders outside China. The real rest is when you find Chinese banks winning business from JP Morgan, Societe Generale, Deutsche Bank and others."
Much of this expertise relates to experience in doing important deals, although the financial instruments do not necessarily have to be complex, he says, adding that he feels confident that Chinese banks will learn quickly because of their large asset base and their experience in China's rapidly growing economy.
The huge growth Chinese financial services firms experienced can be seen in the contrast between what Boleat saw on his first trip to China in 1996 and what he sees there now.
He visited the country for the first time to speak at a conference as director of the Association of British Insurers. At the time China's insurance industry was in its infancy, and the Chinese audience that listened to his speech were young staff of insurance firms who were early in their careers.
Boleat recalls the experience as a "mismatch", because the audience was concerned about the fundamentals of insurance while he and the other international speakers had years of experience in the insurance field and attended the conference with the perception that they needed to give advice about complex insurance structure or regulation policies.
But over the years China's insurance industry has grown tremendously, and many Chinese insurance names are now well known in international markets because of their overseas investment activities.
China Life bought 70 percent of an office building along Canary Wharf in London in a $1.35 billion deal last year, and Ping An Insurance Group bought the Lloyd's of London building for 260 million pounds ($388 million; 345 million euros) in 2013.
China's reinsurance market also grew rapidly, and China Re, the Chinese national reinsurance company, entered London's famous reinsurance market, Lloyd's Market, in 2011 through a partnership with the insurance and reinsurance company Catlin of Bermuda.
While acknowledging these important developments, Boleat says Chinese insurance firms also need to become a lot more sophisticated, as Chinese banks have done.
Having a big balance sheet is just the first step to become an industry leader, he says, adding that another key aspect of the equation to help them grow is for Chinese regulators to open up China's capital markets for foreign competition more.
Although China has already reduced much of its capital market restrictions for foreign firms in accordance with its commitment since joining the World Trade Organization, Boleat says real openness of a financial system is demonstrated by results, "beyond the legal bits".
His staff at the City of London gives great support to Chinese firms that invest in London by introducing them to trusted contacts in the city, he says, and gives them practical advice to help familiarize them with a new environment. These are practical actions the Chinese government could also take into account in welcoming foreign firms, he says.
"For example, China has aspirations for Shanghai to become an international financial center, but what proportions of its assets are held by banks other than Chinese? If it's a few percent, that's not international, as in London it could be 60 percent. Non-discrimination is not just in law, but in practice."
Boleat is optimistic about the opportunities that China's financial markets reforms provide to London's financial firms, but also says London's financial strength can greatly help Chinese investments to achieve internationalization.
This is particularly true because London's financial strength allows it to finance much of Chinese real investment in other European economies, so the benefit it can capture is far beyond Chinese investments in the UK.
"Even if the money is not lent in Britain, British investment banks involved in the financing and British consultants involved in the projects will bring great benefits to Britain's economy," he says.
At the same time, taking the initiative to develop renminbi activities in London would also help London to benefit from the growing importance of the renminbi and China's economy, he says.
Mark Boleat says the renminbi business is very important to London. Cecily Liu / China Daily
Policy chairman of the City of London Corporation
Born: 1949 in Jersey
Bachelor's in economics at Lanchester Polytechnic (now Coventry University)
Master's in European Studies at University of Reading
1986-93: Director-general of the Building Societies Association
1989-93: Director-general of the Council of Mortgage Lenders
1993-99: Director-general of the Association of British Insurers
1999-2012: Ran a consulting business, Boleat Consulting, specializing in regulation, public policy and housing finance.
2012: Became policy chairman of the City of London Corp
Hobbies: Genealogy, rugby union, cricket and golf
Book: Biography of Harry Truman by David McCullough
Food: Jersey new potatoes
(China Daily European Weekly 06/19/2015 page32)