RMB InternationalisationCapturing the Rise of the Renminbi

C35056 332508 HSBC RMB A5 Booklet.indd 1 3/4/14 7:12 PM

Since 1978, China has embarked on a transformational economic journey, initiating market reforms and shifting towards an open market economy. With a population of 1.3 billion, and a strong export-oriented economy, China has climbed the ranks to become the world’s second largest economy.

China’s currency, the RMB has witnessed a gradual appreciation against major hard currencies, such as the US Dollar. Since onshore RMB or CNY is restricted from flows in and out of China, the advent of offshore RMB or CNH market has played an increasingly important role in the internationalisation of the RMB.

The CNH has steadily appreciated against the USD (see Figure 1) – Since January 2011, CNH has appreciated approximately 2.7 percent year-on-year against the USD.

The Rise of China’s RMB

Source: HSBC Global Markets, RMB Business Development, Asia Pacific, “RMB: Going Global”, November, 2013; HSBC Hong Kong and Asia Pacific “Retail Personal RMB Business”, August 2013

The Advent of Offshore RMB

The timeline below illustrates some key initiatives China has launched in an effort to internationalise the RMB

2005Personal RMB Businesscommences - Deposits,

Credit cards

2013-2015Faster growth in China vs.

its main trading partners will support the gradual RMB

appreciation

2010Establishment of offshore RMB product platform

in Hong Kong

2007

First issue of RMB bondslaunched in Hong Kong

2011RMB QFII (RQFII) launched in Hong Kong; Expanded to include Taiwan, Singapore

USDCNH Spot

5.7

5.8

5.9

6

6.1

6.2

6.3

6.4

6.5

6.6

6.7

Jan-11 Jan-12 Jan-13 Jan-14

Figure 1 - USDCNH Spot Historic Chart – Source: Bloomberg, 27 Jan 2014

In 2013, China further liberalised the offshore RMB market and expanded offshore RMB centers to Taiwan, London and Singapore, under the RMB Qualified Foreign Institutional Investors Scheme (RQFII). Additionally, China increased the number of bilateral currency swap agreements to improve the liquidity of offshore RMB, underscoring its commitment to internationalise the currency.

C35056 332508 HSBC RMB A5 Booklet.indd 2-3 3/4/14 7:12 PM

RussiaIceland

ECBBelarus Ukraine

London Turkey

MongoliaKazakhstan

Pakistan

Uzbekistan

S h

United Kingdom

HungaryAlbania

UAE SouthKorea

Hong Kong

Thailand

Malaysia

Taiwan

Hong Kong Singapore

Brazil

Argentina

SingaporeIndonesia

Australia

T it i ith / ArgentinaNew Zealand

Territories with swap /settlement agreements with China

Offshore RMB centres

Source: SWIFT, HSBC

Expansion of Offshore RMB Centers outside of China

Figure 2 – HSBC Global Markets, RMB Business Development, Asia Pacific, “RMB: Going Global”, November, 2013.

C35056 332508 HSBC RMB A5 Booklet.indd 4-5 3/4/14 7:12 PM

The advent of the offshore RMB market has spurred investor interest, from central banks to other financial institutions and individual investors. The improving prospects of RMB internationalisation are certainly enough to incentivise global investors who seek the potential for currency appreciation, and opportunities to diversify their portfolios.

• Prospect of offshore RMB in Global Investments

The offshore RMB deposit base has grown to a significant size, especially in the new offshore RMB hubs, such as Singapore (See figure 3). In addition to traditional deposits, investor interest in offshore RMB bonds, also known as Dim Sum bonds, continues to grow.

• Prospect of RMB in International Trade

As China enjoys its position as the largest exporter in the world, we expect that going forward, more than half of China’s trade with emerging markets will be settled in RMB.

Since 2012, all businesses in the Mainland are eligible to settle trade in RMB for the import and export of goods and services, subject to certain conditions. RMB trade settlement is a major source of offshore RMB liquidity. China’s external trade settled in RMB increased by five times from RMB506 billion in 2010 to RMB 2.63 trillion in 2012, around 10 percent of China’s total trade. This percentage is expected to reach one-third by 2015.

Investors based in Singapore can benefit from the RQFII scheme, which underscores Singapore’s strategic role as an offshore RMB center for South East Asia. This initiative opens opportunities for retail investors looking to take exposure to offshore RMB for portfolio diversification. Below are a few options that investors may consider when investing in RMB-denominated instruments available through HSBC:

Speak to your Relationship Manager today to learn more information about our range of RMB-Denominated Products.

Manage your Liquidity requirements

Earn Fixed Interest

Potential for higher returns

• Multi-currency Savings Account • Time Deposit • Bonds

• FX Services • Structured Deposit • Unit Trust

• Global Transfer in RMB • Structured Product

• Dual Currency Investment

1 HSBC Global Markets, RMB Business Development, Asia Pacific, “RMB: Going Global”, November, 2013.

RMB’s Bright Prospects HSBC provides a full range of RMB-denominated products to suit your financial needs

4.0%

2.0%

3.0%

1.0%

3.5%

1.5%

2.5%

0.5%

0.0%

Offshore Bond Market Growth and %age of Total RMB Issuance

Offshore as %age of Total

Volu

me

(RM

B B

n)B

illio

ns

Offshore Issuance (RMB (RMB bn)

2005

200

180

160

140

120

100

80

60

40

20

-2006 2007 2008 2009 2010 2011 2012

Figure 3 - Note: RMB deposits in Hong Kong, Taiwan DBU and Taiwan OBU in Sep 2013, Macao in Aug 2013, Singapore in July 2013, Luxemburg in June 2013 and London in Dec 2012. Source: HSBC Global Markets

Speak to us today.

Call 1800-HSBC NOW (4722 669)Click www.hsbc.com.sg/wealth-managementVisit any HSBC branch

Deposits into any Renminbi (“rmb”) Deposit Account shall be by way of foreign exchange conversion from non-rmb denominated currency(ies) only, save for transfers between a rmb Time Deposit Account and a rmb Multi Currency Savings Account opened hereunder. Withdrawals from any rmb Deposit Account shall be by way foreign exchange conversion into non-rmb denominated currency(ies) only, save for transfers between a rmb Time Deposit Account and a rmb Multi Currency Savings Account opened hereunder. The deposit in your rmb Deposit Account shall be converted from rmb to another freely convertible currency for withdrawal, at the Bank’s prevailing exchange rate.

Hong Kong Singapore Macao Luxemburg LondonTaiwan (OBU + DBU

International RMB Liquidity (RMB bn)

800

700

600

500

400

300

200

100

0

730

14098.7 58.4

15.5 5.1

C35056 332508 HSBC RMB A5 Booklet.indd 6-7 3/4/14 7:12 PM

Issued by The Hongkong and Shanghai Banking Corporation Limited, which is incorporated in the Hong Kong SAR with limited liability.Printed on environmentally friendly paper.

Risk Warning:

Renminbi is not a freely convertible currency and is subject to changes in regulations initiated by the Chinese authorities. There may be a gain or loss when you convert foreign currency. Customers are advised to make their own independent judgment in considering whether to place funds in RMB deposits or RMB denominated investments.

Important Notes:

This material has been prepared for information only. Information contained in this material is obtained from sources believed to be reliable, however HSBC does not guarantee its completeness or accuracy. This material is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment or securities nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. The specific investment objectives, personal situation and particular needs of any person have not been taken into consideration. You should therefore not rely on it as an investment advice. Opinions and estimates expressed are subject to change without notice and HSBC expressly disclaims any and all liability for representations and warranties, express or implied, contained herein, or for omissions. All charts and graphs are from publicly available sources or proprietary data. The mention of any investment product should not be construed as representing a recommendation to buy or sell that product, nor does it represent a forecast on future performance of the product. The value of investments and units may go down and up, and the investor may not get back the original sum invested. Past performance is not necessarily indicative of future performance. Investors and potential investors should read the relevant prospectus or product information, available at HSBC branches, before investing. Before you make any investment decision, you may wish to consult a financial adviser. In the event that you choose not to seek advice from a financial adviser, you should carefully consider whether the product is suitable for you.

C35056 332508 HSBC RMB A5 Booklet.indd 8 3/4/14 7:12 PM