OFFSHORE MARKET OF ¥ UAN ¥ UAN IS ON THE WAY TO INTERNATIONALIZATION Presented By: Qian Gao Zahra Rezapour Lulu Dong

A GENDA Offshore Yuan Market Definition Features Demand for Yuan Importance Yuan bonds Good Investments’ Dim Sum Bonds New Yuan Products Influences Suggestions on Internationalization of Yuan

OFFSHORE MARKET Definition : Activity which is specializing foreign currency loans and deposits is called offshore finance, and the market is called offshore market. Features compared to onshore market:  Market in a broad scope, strength of abundance in capital  Loan relationship in market exists between borrowers and lenders who are non-residents.  Basically, offshore markets are not subject to the constraints of financial laws and regulations governing foreign exchange in host government authorities.  There’s a relatively independent system of offshore market interest rates.

OFFSHORE YUAN MARKET GROWS UP QUICKLY

HEAVY DEMAND More banks are scrambling to relocate foreign exchange traders to Hong Kong. A growing number of Chinese importers and exporters settle cross-border trade in Yuan. An increase of demand for Yuan among American businesses. E.g. McDonald's Corp. and Caterpillar Inc. became the first U.S. non-financial corporations to sell debt priced in Yuan in Hong Kong.

IMPORTANT MEANING Open up new channels of Yuan’s access to foreign investors. Boost trade among China’s mainland, Hong Kong and other regional partners. Further encourage the recognition and acceptance of Yuan by overseas market entities Make the greatest step by China to make Yuan become world currency in the future.

¥UAN BONDS

GOOD INVESTMENTS’ Hong Kong signed an agreement with Beijing to allow companies trade freely in the Yuan One-year non-deliverable forwards are at about 6.68 Yuan to a dollar, meaning the market expects the currency to appreciate over 1 percent in a year

D IM S UM B ONDS Foreign investors face no obstacles when it comes to dim sum bonds. Encourage the growth of a so-called offshore Yuan market in Hong Kong, allowing bankers to create new products and services. Interest has picked up in ways to play the currency's rise against the dollar. Give access globally to investors who want exposure to the currency.

DRAWBACKS Yuan deposits make up less than 2 percent of Hong Kong's total bank deposits. The trend now is to hold Yuan assets, not issue Yuan debt. Owing debt in Yuan means you will have to pay back even more when it is due, and that's not a good thing when you don't even know how much it's going to appreciate by.

DRAWBACKS Investors who want to speculate on the Yuan, or companies that need to hedge against its fluctuations could only do so indirectly, through contracts that tracked the currency's moves. Contracts become useless for businesses that need actual Yuan to buy or sell goods.

NEW YUAN PRODUCTS WILL BE LAUNCHING

INFLUENCE Banks such as Citigroup Inc. and HSBC are offering investors Yuan-priced bonds and interest-rate derivatives. Mutual funds dedicated to Yuan-priced investments were created. Open the doors to wider issuance of Yuan- denominated bonds and other investments Large trades can be executed relatively quickly in the NDF market. Opportunities are beginning to emerge.

ACCELERATE INTERNATIONALIZING YUAN Strengthen the cooperation with neighboring countries and regions and build trust between investors and the currency Yuan. Encourage the establishment of free trade and promote the trade settlement in Yuan. Increase the use of the currency Yuan in foreign investment and financial aid. Strengthen intergovernmental cooperation on monetary regulations, including the on-going implementation of the Yuan exchange agreement. Further expand offshore markets of Yuan.

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