A defining characteristic of China’s renminbi (RMB) internationalisation drive should be its presence in offshore currency markets within global financial centres. Beyond Hong Kong, London has become a major financial hub for offshore RMB activities. As of December 2023, RMB deposits in the UK reached RMB 89.6 billion ($12.4 billion), while outstanding RMB loans reached RMB 91.2 billion ($12.7 billion). The cumulative RMB clearing volume processed in London amounted to RMB 87.58 trillion ($12.2 trillion) last year. According to Swift, 37.30% of RMB foreign exchange spot transactions occurred in the UK by the end of 2023. In the bond market, RMB-denominated bonds have already formed a sizable market in London. By the end of 2023, 170 dim sum bonds were listed on the London Stock Exchange, with an outstanding value of RMB 102.63 billion ($14.3 billion). Expanding bond market connectivity between China and the UK would be mutually beneficial. A key area of focus for China and the UK is expanding collateral cooperation between their central banks. In February 2024, the People’s Bank of China and the Hong Kong Monetary Authority (HKMA) announced that government bonds and policy financial bonds issued in mainland China would be eligible as collateral for the HKMA’s RMB liquidity facility. Similarly, collateral cooperation between China and the UK would allow RMB-denominated bonds to be increasingly used in global markets, especially in the Eurozone. This would facilitate smoother cross-border operations, particularly in managing liquidity and reducing risks, making the RMB more appealing to global investors and financial institutions. Green bonds also play a crucial role in the RMB internationalisation strategy, aligning China’s financial markets with global sustainability trends. The development of green bonds between China and the UK has gained momentum, with both nations positioning themselves as leaders in green finance. In 2023, China issued RMB 940 billion ($130.5 billion) in green bonds, the highest issuance globally. Collaboration between the two countries is essential to accelerating the growth of the global green bond market. It grants international investors access to the world’s largest green bond market by issuance, and enables Chinese enterprises and global institutions to fund green projects in RMB. The feasibility study for China-UK Bond Connect was initiated during the 10th UK-China Economic and Financial Dialogue in June 2019. The success of bond connectivity between Mainland China and Hong Kong is clear, with bond trading volumes growing from an average daily trade value of RMB 1.5 billion ($208 million) in the first month of its launch in 2017 to approximately RMB 46.6 billion ($6.5 billion) by May 2024—a more than 30-fold increase. Given London’s similar position to Hong Kong as a leading global financial centre, with a large and prosperous bond market, establishing bond market connectivity between China and the UK will significantly drive RMB internationalisation. John Gong is the vice president of research and strategy at University of International Business and Economics – Israel.
