In a paper released today titled Renminbi Internationalisation and the Evolution of Offshore RMB Centres: Opportunities for Sydney, the authors examine the 18 offshore RMB centres around the world and assess the opportunities for Australia.
While the economic case for some RMB centres is straightforward given large local Chinese populations (Hong Kong and Singapore being prime examples), other centres, such as Luxembourg and London have carved out 'niches' for themselves, said the authors.
"Luxembourg [is a] funds management and RMB capital market activity [hub]; and London, being the largest global foreign exchange centre, [has specialised in] offshore RMB foreign exchange business," said the paper.
The authors point out that it is likely to take five to 10 years before the RMB becomes a freely tradeable, highly liquid international currency.
"In the interim, financial services companies who see commercial value in doing so may gain an 'early mover' advantage through building up a brand name and presence in China and establishing commercial relationships with Chinese companies and consumers of financial products," said the paper.
The paper pointed to the opportunities for Australian fund managers given the "substantial increase in exposure to assets" that is likely as China opens up its capital account and becomes a significant component of global benchmark indices.
"In terms of raising investable funds in China, the potential is enormous, reflecting the very large pools of savings and the increasing need for diversification of Chinese investments into offshore assets," said the authors.
However, the paper identified four major challenges for Australian operators when it comes to taking advantage of the opening up of the RMB.
First, brand recognition and distribution of Australian funds in China will not be easy, advised the authors.
Second, China's "different approach" to finanical market regulation and the pace of regulatory change will be a stumbling block.
"Getting on top of this often requires a local presence in China," said the paper.
Third, there is a lack of appropriate investment vehicles for selling funds into China and elsewhere in Asia – something that should be addressed as the Asia Region Funds Passport is developed, said the authors.
Finally, the lack of awareness by many Australian companies of the pace and direction of policy change in China and the related emerging opportunities is a challenge, said the paper.
"Raising awareness can bring increasing benefits down the track to Sydney and Australia more broadly."
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