The Rise of RMB Payments: Lessons from China & Hong Kong (September 2013)

1. Payment Lesson from Other Countries – China & Hong Kong September 2013

2. Contents

3. Introduction of RMB Business • The Scopes of RMB business can be divided into TWO parts:

4. Introduction of RMB Business • Explosive growth in RMB offshore market From: HKMA, Sept 2013

5. Introduction of RMB Business • Explosive growth in RMB offshore market From: HKMA, Sept 2013

6. Challenges Encountered • Various restrictions exist

7. Challenges Encountered • Local payment system in China involved • China National Advanced Payment System • A local payment system in China • Different payment message type (CMT vs SWIFT MT) • System in Chinese

8. Challenges Encountered • Local payment system in China involved • All cross-border payments must be processed by the RMB Clearing Bank at the beginning RMB Clearing Bank CMT SWIFT MT A bank in China Different formats and Chinese characters may be included A bank in Hong Kong

9. Solutions • Regulatory relaxations • Various measures announced by the People’s Bank of China and the Hong Kong Monetary Authority to further complete the RMB business

10. Solutions • Regulatory relaxations

11. Solutions • System enhancements & developments • The RMB Clearing Bank • Complied a set of rules for straight processing on RMB cross-border payments • Chinese characters conversion • Introduction of RMB RTGS in 2007 • The only offshore RTGS system denominated in RMB • A replica of HKD RTGS • A wide range of clearing and settlement functions

12. Solutions • Persistent communications with monetary authorities • Renminbi Services Committee in the Hong Kong Association of Banks provides a forum to discuss industry-wide issues arising out of the provision of RMB banking services in Hong Kong • Communications between the Renminbi Services Committee and the PBoC and HKMA help improving the RMB payment practice

13. What We Have Learnt

14. Recent Trends in RMB Payments • Allow foreign banks to join the local clearing networkdirectly • CIPS: China International Payment System • PBoC announced the development of CIPS in 2011 • CIPS is most likely to operate in CHIPS way, but need to fulfill the regulations set by PBOC or SAFE • Allowing 50 to 100 Chinese and international major banks to become members, to settle and clear RMB payments through CIPS directly • Other financial institutes in the world can establish corresponding bank relationships with the CIPS members for clearing and settlement RMB payments through CIPS

15. Recent Trends in RMB Payments • Allow foreign banks to join the local clearing networkdirectly • Payment systems in certain provinces allow banks outside China to join directly • Shenzhen Finance Settlement System (SZFSS) • Allow banks in Hong Kong to join the SZFSS, to settle Renminbi payments between Hong Kong and Shenzhen directly

16. Recent Trends in RMB Payments • Focus started to shift

17. Recent Trends in RMB Payments • Focus started to shift From: HKICL, Sept 2013

18. Recent Trends in RMB Payments • Focus started to shift • With the expanded RMB business scopes, more and more products & services have been developed and provided for customers • The daily RMB clearing value reached to 250 billion in 2012 An important sign of the development of RMB offshore center

19. Contact Us

20. - END -