A Study On The Development Of Offshore RMB Market In Hong Kong

. The early development of Hong Kong’s offshore RMB market was started by the market behavior spontaneously. The central government’s policy was mainly designed to meet the needs of individual residents’cross-border RMB consumption flow, such as mainland residents like shopping using RMB in Hong Kong. But since the financial crisis in2008, the dollar-based international monetary system has been criticized more than ever. Based on this, the Chinese government has established a strategic objective that is "to promote RMB internationalization, to speed up the East Asia regional monetary cooperation and to accelerate the implementation of the international monetary system reform. Hong Kong’s RMB offshore market is an important content of RMB internationalization. Hong Kong’s offshore RMB market which achieved rapid development now has become the largest overseas offshore RMB center. A complete offshore market system was established there and it provided important payment and settlement and investment support for the offshore RMB business. However, in this process, we also found some problems which affected the central government’s decision-making in RMB internationalization policy, such as arbitrage, weakening the influence mainland monetary policy. Hong Kong’s offshore market belongs to a policy-driven offshore market whose development is certainly influenced by the central government policies. Therefore, these disputes definitely influence the future development of Hong Kong’s offshore RMB market. In this paper, the author has carried on a series of comprehensive discussion on Hong Kong’s offshore RMB market including composition, background, process, achievement and current major issues. Consequently, there are some policy recommendations on this basis.The development of Hong Kong’s offshore RMB market has its own advantages. Based on the existing research on the offshore RMB market, it is generally believed that geographical location, economic level, the legal system, political stability, government policy support and other factors affect the development of the offshore RMB market. At the same time existing studies have also believe that Hong Kong has the ability to develop the offshore RMB market and its impacts on the mainland is basically controllable, such as the addition of hot money into the mainland, the mainland interest rate and exchange rate, affecting the money supply on the mainland, the stability of Hong Kong’s financial market etc. On the basis of these studies, this paper analyzes the development of Hong Kong’s offshore RMB market background and advantages. The conclusion is that Hong Kong has a sound financial system and regulation, developed financial market, and other successful offshore market experience like the offshore US dollar market. After further analysis on the central government’s policy of RMB internationalization process, we found the central government is more inclined to support the development of Hong Kong’s offshore RMB market cautiously. However, the different RMB internationalization policy during the government’s departments enlarged the arbitrage controversy, which further affects the future development of Hong Kong’s offshore RMB market.Hong Kong has established complete offshore RMB market system preliminarily with a certain degree of market depth. This article shows us a thorough analysis in three aspects that is the clearing system, investment market and foreign exchange market. First of all, in terms of payment, Hong Kong’s RMB clearing net provided payment and settlement services between offshore and onshore markets. Secondly, Hong Kong’s RMB investment market has a certain scale with diversified issuers. Thirdly, two foreign exchange markets were established:one is CNY currency markets with the cross-border trade enterprises to participate; the other one is a completely free CNH exchange rates market. Hong Kong and the global market participants are in a free competitive context leading to Hong Kong marketization of RMB exchange rate without any transaction background restrictions. When the two markets develop to a certain size, they can provide different foreign exchanges including spot, forward, NDF and IRS and so on. Under the circumstance of non-free exchange in the mainland, Hong Kong’s RMB offshore market plays a very important role for the foreign inverters.The biggest obstacle in the development of Hong Kong’s offshore RMB market is the interest arbitrage between offshore and onshore market. This phenomenon has an important impact on the development of Hong Kong’s RMB offshore market. This paper analyzes three kinds of cross-border RMB arbitrage model and their impacts. The positive influence of arbitrage is the promotion to the development of RMB cross-border transaction. However, its negative influence is the influence of mainland money supply and macroeconomic regulation and control. In sum, the negative impact of arbitrage is limited. The development of Hong Kong’s RMB offshore market is of great help to the RMB internationalization.In sum, the conclusion is:firstly our government can play the positive role of arbitrage to accelerate RMB internationalization and the development of Hong Kong’s offshore RMB market; secondly, we should establish an easier environment for mainland enterprise to launch IPO and issue RMB bonds so as to promote the development of the Hong Kong investment market; lastly the development of RMB offshore market in Hong Kong fully reflects the role of market forces. Therefore, the Chinese government can learn from Hong Kong’s offshore RMB market mechanism to complete the mainland exchanging and bond market, which eventually realize the virtuous cycle development between onshore and offshore markets.