Battle lines are drawn for RMB traders in Asia
The launch of the Shanghai Free Trade Zone may pose a threat to Hong Kong’s status as the world’s leading renminbi trading hub, with banks setting up in the zone likely to poach RMB specialists from their rivals in the special administrative region.
Recruiters say they will be looking for traders at Hong Kong banks who have a RMB trading track record.
“Hong Kong is currently the world’s largest offshore RMB centre, having started trading in the currency in 2009. This has given Hong Kong banks time to build and train a pool of experts,” says Billy Mak, Hong Kong Baptist University associate professor of finance and decision sciences.
The Financial Times reported earlier this month RMB trading in Hong Kong continues to rise rapidly, from around US$8bn in daily volume at the end of 2012 to as much as $13bn now, according to HSBC data.
Mak says that RMB traders in Hong Kong have already attracted the attention of the banks that have been licensed to set up in the Shanghai zone, especially those traders who are mainland Chinese nationals.
“These people have very strong profiles for the newly set-up free trade zone in Shanghai.”
Hong Kong banks are already at a disadvantage when it comes to the Shanghai Free Trade Zone, without having to contend with losing teams of RMB traders to mainland Chinese banks.
The Chinese authorities have issued licenses to a number of local and four foreign banks – Citi, Bank of East Asia, HSBC and Singapore’s DBS – but Hong Kong banks are excluded for the time being.
One industry observer, who asked not to be named, said Hong Kong was viewed as competition, but nonetheless believed that banks from the city would be licensed a later stage.
“Banks in Shanghai are targeting development of northern China, while those in Hong Kong are looking at southern China for development. It seems that the Chinese government has a clear regional definition when selecting the first batch of foreign banks to operate in the Shanghai Free Trade Zone."
Fortunately, Mak says, the potential impact on Hong Kong may be mitigated by the cautious approach being adopted by the Chinese authorities to use Shanghai’s free trade zone as a testing ground. This means the number of branches foreign banks can open initially is restricted.
“Until the trial proves successful and a decision is taken to replicate it in other cities, we don’t expect a significant demand for recruitment.”
Alvin Cheung, associate director at Prudential Brokerage, said he expects the Shanghai Free Trade Zone will offer a special tax rate to attract talent from Hong Kong and overseas countries.
“This might be similar to the rate offered in the Qianhai development zone. Qianhai offers a special tax rate at just 15%, the same as the maximum in Hong Kong and far lower than the typical rate in China.”
According to Trading Economics, the personal income tax rate in China is 45% in 2013.
But, Cheung said, Shanghai zone is probably going to be more attractive to corporates than Qianhai.
"While Qianhai has similar operating conditions to other cities in China, the Shanghai zone is offering more concessions to foreign banks, which makes it more attractive.”
Shanghai’s zone – unlike Qianhai – permits foreign banks to set up wholly-owned units in the Shanghai free-trade zone. They are also allowed to set up joint ventures with qualified Chinese private banks.”