The expanded scope has led to a rapid growth in the transaction volume of RMB trade settlement in Hong Kong, which was increased from a monthly average of 4.5 billion yuan in the first half of 2010, to more than 87 billion yuan in the fourth quarter, representing an almost twenty-fold increase during the period. To date, Hong Kong accounts for about 75% of Mainland’s RMB trade settlement. This clearly demonstrates the strong preference of market players for making use of Hong Kong’s platform for RMB trade settlement. The highly efficient and reliable RMB Real Time Gross Settlement (RTGS) system in Hong Kong has played a significant role here. We are the first and so far the only place outside Mainland China that has developed a full-fledged RMB RTGS system, enabling us to handle the settlement of cross-border trade between the Mainland and other economies in a safe and efficient manner. China is one of the biggest trading nations in the world. The potential for further increases in RMB trade settlement is considerable given that the current volume only accounts for a small fraction of total trade between China and the rest of the world. RMB trade settlement proceeds will represent an important and sustainable source of growth in offshore RMB funds in Hong Kong. The third dimension is RMB wealth management business. The RMB wealth management business in Hong Kong took off last year after the RMB Clearing Agreement was revised in July 2010.
Today I will highlight two aspects that I believe are key drivers for Hong Kong’s growth in the next few years. The first is the gradual financial liberalisation in Mainland China and the second is the wider external use of the renminbi (RMB). The gradual financial liberalisation in mainland China In the gradual financial liberalisation process in Mainland China, we can observe three key patterns: inflows being de-regulated before outflows, direct investment flows being liberalised before portfolio investment flows, and collective investment schemes being relaxed before individual investors. Specifically, during the early stages of Mainland China’s reform process, in the late 1970s and early 1980s, only Foreign Direct Investment (FDI) was encouraged. Hong Kong has been the largest source of FDI for the Mainland, accounting for more than half of the total amount in 2009. In the opposite direction, Mainland China’s Overseas Direct Investment (ODI) has also been liberalised gradually over the years. Hong Kong has been the largest recipient of ODI flows from the Mainland. At present, about 60% of ODI from the Mainland has gone to Hong Kong or via Hong Kong to other places. The significant share of Hong Kong in Mainland’s FDI and ODI underscores the unique role of Hong Kong as a gateway for foreign enterprises to access the Mainland market, while at the same time being a springboard for Mainland institutions to gain exposure to international markets. With respect to portfolio investment flows, market attention has been focusing on portfolio flows from advanced economies towards Mainland China.