City of London’s $10 trillion Chinese conduit plans to grow

(Bloomberg) – Britain’s relationship with China may be at an all-time low, but the City of London outpost of China Construction Bank Corp. relies on ever closer financial flows between the two countries.

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The branch is the only renminbi clearing bank in the UK, making it a key conduit for potentially staggering flows of Chinese money and investment. It has authorized some 64 trillion yuan ($10 trillion) in transactions since 2014 – the largest volume outside Asia – and its top British leader plans to expand.

Yang Aimin, who has led the UK operations of China’s second-largest lender since 2018, said in an interview last week that he was aiming for double-digit growth in clearing volume in 2022 after rising 18% last year to reach 11.9 trillion yuan. He also expects the service business for London-listed Chinese companies to grow.

“Hong Kong has embarked on a path that can be largely replicated by London,” he says, noting that the existing Shanghai-London Stock Connect – which allows Chinese companies to list in the UK and vice versa – could ultimately open the door to a similar arrangement for bond trading.

Its ambitions are welcome news for the City of London, which is seeking to reestablish itself as the international financial center of choice now that it is outside the European Union. The British government has long sought to attract Chinese investment, a process that began in earnest in 2014 with an agreement for the CCB to facilitate offshore yuan clearing in London and the issuance of a 3 billion yuan bond to London in 2016, the first RMB sovereign bond. issued outside of China and Hong Kong.

The mood music has soured somewhat in recent years as British lawmakers increasingly wary of closer ties with China. The UK will join countries like the US and Australia in a diplomatic boycott of the Beijing Winter Olympics amid growing criticism of China’s human rights record, including the crackdown in Hong Kong and concerns about human rights abuses faced by the Uyghur minority.

But Yang remains hopeful about the prospects for closer financial ties, saying one way the UK can encourage more investment is to allow renminbi bonds to be accepted as collateral in UK markets. This could strengthen the amount of renminbi holdings and promote more trading in all types of yuan assets.

“We have discussed the inclusion of safeguards many times with the UK authorities over the years, I hope they can sense our sincerity and act quickly,” the 56-year-old Harvard graduate said.

CCB provides foreign exchange and clearing services to China’s four listings in London, including Huatai Securities Co. and China Pacific Insurance Group Co., and Yang would like more dual listings in London, although other options are proliferating. Last month, the China Securities Regulatory Commission announced an extension of the Stock Connect program to eligible listed companies in Germany and Switzerland, paving the way for such listings elsewhere in Europe.

minnow renminbi

And London remains a relative minnow when it comes to offshore renminbi transactions. Hong Kong dominates with three-quarters of the market with the UK in second place at 6.6%, ahead of Singapore’s share of 3.3%, according to data compiled by the Society for Worldwide Interbank Financial Telecommunication, or SWIFT. .

It’s a familiar challenge for Yang, who spent his early career at CCB promoting the use of renminbi interest rate swaps, a common hedging tool in global markets that didn’t exist in China until recently. in 2006. Yang said he found himself showcasing the products many times during his time as deputy general manager of commerce at CCB’s Beijing headquarters.

Its current office, located in the shadow of the Gherkin and NatWest towers, has around 130 employees offering services ranging from corporate banking to clearing. He says he has no plans to expand into investment banking at the moment, instead relying on CCB’s Hong Kong branch to provide those services to clients.

Yang also said investor appetite was growing for a wider range of Chinese assets, including real estate investment trusts or REITs. Even China’s growing housing debt crisis hasn’t dented interest, he said, noting that Evergrande’s troubles are a sign of a maturing market.

“Some investors have been burned, but in the long run, I think it’s a good thing to break free from the expectation that the Chinese government will always bail out these companies,” he said. “As China transforms into a more market-oriented place, foreign investors must accept that Chinese bonds may default, companies as big as Evergrande may fall.”

He issues an equally optimistic note on the outlook for the yuan as China’s central bank bucks the general trend of higher interest rates.

“It’s a vote of confidence,” Yang said, noting that business opportunities will arise as a result. “Change is good, change brings opportunities.”

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