Move to boost yuan globalization

The Hong Kong dollar-renminbi Dual Counter Model was launched at a time when the strategic importance of Chinese yuan currency in terms of fund flow, liquidity and popularity is on the ascent.

With the launch of the model on Monday, 24 Hong Kong-listed companies, such as Tencent Holdings, Alibaba Group, Hong Kong Exchanges and Clearing and AIA Group, will offer their shares to be traded in both the Hong Kong dollar and renminbi. These are highly sought-after stocks by mainland investors with strong liquidity, accounting for around 40 percent of the average turnover of the Hong Kong bourse.

Shares traded under the model will belong to the same class as before, with the same rights and entitlements, and be fully tradable across counters. There will be nine dual counter market makers under the program to provide liquidity.

Total trading volume of the 24 firms reached HK$25 billion and HK$177 million at Hong Kong dollar and renminbi counters, respectively, on Monday, according to HKex.

Mainland telecom giant China Mobile Communications Group registered a trading volume of 55.2 million yuan ($7.71 million) on the first trading day, followed by technology giant Tencent's 36.6 million yuan.

At the opening bell ceremony in Hong Kong, the city's Financial Secretary Paul Chan Mo-po said the model was launched at a time when the strategic importance of the renminbi is increasing.

Chan said that the total amount of cross-border use of the renminbi reached over 36 trillion yuan in 2021 — an increase of nearly 30 percent over the year before. As at the first quarter this year, the proportion of renminbi in cross-border payments and receipts on the mainland has risen to 48 percent, surpassing the US dollar for the first time.

But he added that there is still ample room for global use of renminbi to grow. "While our country is the world's second-largest economy, accounting for more than 18 percent of the world's gross domestic product, and is the largest trading economy contributing to about 13.5 percent of global trade, the use of the renminbi in cross-border trade settlement, and as a worldwide reserve currency, constitutes less than 3 percent."

Chan said the Hong Kong Special Administrative Region government will expand the channels for cross-boundary renminbi flows, provide more investment and risk management products, and upgrade related infrastructure to build an even more vibrant offshore renminbi ecosystem.

As investors can trade these 24 shares across both Hong Kong dollar and renminbi counters, Xiaomi Corp — one of the 24 Hong Kong-listed shares that offers trading in renminbi — as well as Bank of China (Hong Kong), say the model helps to reduce exchange costs and risks, as well as increase liquidity of the renminbi counter and narrow the spread between the two counters.

Zhongtai International said that in the medium term, the introduction of the dual counter model will increase the number of offshore investable targets denominated in renminbi, which can enrich utilization of the Chinese currency. Over the long run, the dual counter model may induce Belt and Road markets and ASEAN nations to be more willing to hold the currency, thereby promoting yuan internationalization.

Edward Au, southern region managing partner at Deloitte China, expects market liquidity to be further improved after the dual counter model is included in the Southbound Stock Connect, and he thinks the first new stocks in Hong Kong adopting the dual counter model will be listed before the end of the year, depending on the exchange rate trend of renminbi.

Hong Kong Exchanges and Clearing Chief Executive Officer Nicolas Aguzin said the bourse will continue to negotiate with Hong Kong and mainland regulators to incorporate the dual counter model into the southbound trading of Hong Kong Stock Connect, thus improving capital flows of southbound connect, and attracting international issuers to trade using the arrangement.