1. Payment Lesson from Other Countries – China & Hong Kong September 2013

2. 2 Contents Introduction of RMB Business Challenges Encountered Solutions What We Have Learnt Recent Trends in RMB Payments

3. 3 Introduction of RMB Business The Scopes of RMB business can be divided into TWO parts:The Scopes of RMB business can be divided into TWO parts: Cross-border Business (Since 2004) Cross-border (Hong Kong & China) Payments Certain restrictions for personal customers Payments under Current & Capital accounts for corporate customers Cross-border correspondent bank services Offshore RMB Business (Since 2010) Without any RMB cross-border flows between China and Hong Kong Treated like a foreign currency in Hong Kong

4. 4 Introduction of RMB Business Explosive growth in RMB offshore marketExplosive growth in RMB offshore market From: HKMA, Sept 2013

5. 5 Introduction of RMB Business Explosive growth in RMB offshore marketExplosive growth in RMB offshore market From: HKMA, Sept 2013

6. 6 Challenges Encountered Various restrictions existVarious restrictions exist Cross-border Personal Payments Aggregate daily limit – RMB80,000 Same name remittances allowed only Cross-border Corporate Payments Must be either current or capital accounts Transaction background must be examined Offshore Payments Strict limitations on offshore payments at the launch of RMB business

7. 7 Challenges Encountered Local payment system in China involvedLocal payment system in China involved –C hina N ational A dvanced P ayment S ystem A local payment system in ChinaA local payment system in China Different payment message type (CMT vs SWIFT MT)Different payment message type (CMT vs SWIFT MT) System in ChineseSystem in Chinese

8. 8 Challenges Encountered Local payment system in China involvedLocal payment system in China involved –All cross-border payments must be processed by the RMB Clearing Bank at the beginning A bank in Hong Kong SWIFT MT A bank in China CMT Different formats and Chinese characters may be included

9. 9 Solutions Regulatory relaxationsRegulatory relaxations –Various measures announced by the People’s Bank of China and the Hong Kong Monetary Authority to further complete the RMB business

10. 10 Solutions Regulatory relaxationsRegulatory relaxations 2009 PBoC – Introduced cross-border trade businessPBoC – Introduced cross-border trade business PBoC – Allowed banks in China to provide RMB corresponding bank services for foreign banksPBoC – Allowed banks in China to provide RMB corresponding bank services for foreign banks 2010 HKMA – Allowed FIs in Hong Kong to engage in RMB business in accordance with the banking practice in other currenciesHKMA – Allowed FIs in Hong Kong to engage in RMB business in accordance with the banking practice in other currencies HKMA – Removed the restrictions on offshore RMB paymentsHKMA – Removed the restrictions on offshore RMB payments 2013 PBoC – Allowed banks in China to credit the payments to the beneficiary prior to verify the transaction backgroundPBoC – Allowed banks in China to credit the payments to the beneficiary prior to verify the transaction background

11. 11 Solutions System enhancements & developmentsSystem enhancements & developments –The RMB Clearing Bank Complied a set of rules for straight processing on RMB cross-border paymentsComplied a set of rules for straight processing on RMB cross-border payments Chinese characters conversionChinese characters conversion –Introduction of RMB RTGS in 2007 The only offshore RTGS system denominated in RMBThe only offshore RTGS system denominated in RMB A replica of HKD RTGSA replica of HKD RTGS A wide range of clearing and settlement functionsA wide range of clearing and settlement functions

12. 12 Solutions Persistent communications with monetary authoritiesPersistent communications with monetary authorities –Renminbi Services Committee in the Hong Kong Association of Banks provides a forum to discuss industry-wide issues arising out of the provision of RMB banking services in Hong Kong –Communications between the Renminbi Services Committee and the PBoC and HKMA help improving the RMB payment practice

13. 13 What We Have Learnt Regulations take time to evolve System manipulations Effective channels with regulatory entities

14. 14 Recent Trends in RMB Payments Allow foreign banks to join the local clearing network directlyAllow foreign banks to join the local clearing network directly –CIPS: C hina I nternational P ayment S ystem PBoC announced the development of CIPS in 2011PBoC announced the development of CIPS in 2011 CIPS is most likely to operate in CHIPS way, but need to fulfill the regulations set by PBOC or SAFECIPS is most likely to operate in CHIPS way, but need to fulfill the regulations set by PBOC or SAFE Allowing 50 to 100 Chinese and international major banks to become members, to settle and clear RMB payments through CIPS directlyAllowing 50 to 100 Chinese and international major banks to become members, to settle and clear RMB payments through CIPS directly Other financial institutes in the world can establish corresponding bank relationships with the CIPS members for clearing and settlement RMB payments through CIPSOther financial institutes in the world can establish corresponding bank relationships with the CIPS members for clearing and settlement RMB payments through CIPS

15. 15 Recent Trends in RMB Payments Allow foreign banks to join the local clearing network directlyAllow foreign banks to join the local clearing network directly –Payment systems in certain provinces allow banks outside China to join directly Shenzhen Finance Settlement System (SZFSS)Shenzhen Finance Settlement System (SZFSS) –Allow banks in Hong Kong to join the SZFSS, to settle Renminbi payments between Hong Kong and Shenzhen directly

16. 16 Recent Trends in RMB Payments Focus started to shiftFocus started to shift Personal Cross-border Payments Cross-border trade settlement payments Offshore payments

17. 17 Recent Trends in RMB Payments Focus started to shiftFocus started to shift From: HKICL, Sept 2013

18. 18 Recent Trends in RMB Payments Focus started to shiftFocus started to shift –With the expanded RMB business scopes, more and more products & services have been developed and provided for customers –The daily RMB clearing value reached to 250 billion in 2012

19. 19 Contact Us Public Institutions Business Head, Financial Institution DepartmentPublic Institutions Business Head, Financial Institution Department Tel: +852 3510 8265Tel: +852 3510 8265 Email: christine.fan@icbcasia.comEmail: christine.fan@icbcasia.com Ms. Christine Fan Deputy Head, Corporate Banking Product Development DepartmentDeputy Head, Corporate Banking Product Development Department Tel: +852 3510 8300Tel: +852 3510 8300 Email: tom.chen@icbcasia.comEmail: tom.chen@icbcasia.com Mr. Tom Chen Executive Director, Corporate Banking Product Development DepartmentExecutive Director, Corporate Banking Product Development Department Tel: +852 3510 8903Tel: +852 3510 8903 Email: ken.so@icbcasia.comEmail: ken.so@icbcasia.com Mr. Ken So

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