ICBC urges Canadian banks to spur volumes at yuan hub

Toronto / REUTERS

Trading activity in North America’s first yuan hub, Toronto, has fallen short of the heightened levels expected at its launch and local banks should be doing more to spur growth, an Industrial and Commercial Bank of China (ICBC) executive said.
The hub was launched more than a year ago to foster increased trade and investment activity with China, already Canada’s second-largest trading
partner.
Transaction volumes have grown, but not to the “sky high” level expected around the time of its launch, said Min Gao, head of the treasury department at the Canadian arm of ICBC, the hub’s official clearing bank.
Gao did not put a figure on what the “sky-high” expectations were, but he confirmed that roughly $5 billion of transactions went through the Canadian hub in its first year, most of which came from the United States, including ICBC’s U.S. branch.
Canada’s trade with China was $85 billion in 2015, according to the Asia Pacific Foundation of Canada’s website.
The hub enables the processing of yuan payments outside of China, increasing accessibility to the currency and avoiding the costs associated with cross-border payments.
However, Toronto faces competition from other renminbi hubs, including Hong Kong, which benefits from a deep pool of liquidity.
Additional liquidity in Toronto would lower costs and better facilitate the development of yuan-denominated financial products, said Gao.
“We’d like local banks to leverage this relationship,” said Gao, adding that participation in the hub would increase if Canadian banks offered a broader set of products to retail and corporate clients. Some of the products needed to increase yuan usage in Canada are already in the works, said CJ Gavsie, managing director & co-head, global fixed income, currencies & commodities & China capital markets at BMO Capital Markets, the first bank to use the Toronto hub last March.
Gavsie said these include the ability to deposit and borrow in yuan. Spot payment and hedging products are offered, but it takes time for businesses to reach out to their counterparties, adjust long-term contracts and change billing terms, he added.
Aside from trade, Canadian investors have been given a 50 billion-yuan ($7.73 billion) quota to invest in China’s capital markets under the Renminbi Qualified Foreign Institutional Investor scheme.
But a changing Chinese reform process has created confusion for investors, restraining activity, said Gavsie.
Progress of the Toronto hub has also been slow as investors adjust to slower Chinese growth, said Jason Henderson, head of global banking and markets, HSBC Bank Canada.
China’s cooling economy and yuan devaluation in August damped some foreign investor appetite for yuan-based assets, he said.