RMB Products & Services

RMB-denominated investment funds

Luxembourg UCITS have a large market share in a number of Asian and Latin American countries. For this reason, an increasing number of international fund managers create UCITS for global distribution. The Luxembourg financial centre is the uncontested leader in this field.

In December 2014, the first Luxembourg UCITS received permission to use the Stock Connect. They can now invest in China A-shares listed on the Shanghai stock exchange alongside the existing investment schemes (such as QFII and RQFII).

Luxembourg already authorised several international promoters (inter alia Alliance Bernstein, Allianz, BlackRock Investment Management, CSOP Asset Management, Eurizon Capital, Fidelity Investments, Franklin Templeton Investments, HSBC Group, Mirabaud & Cie, Schroders) to launch RMB denominated share classes.

Five of the six Chinese asset managers who opted to launch investment funds in Europe via their Hong Kong subsidiaries have selected Luxembourg as a domicile for their funds: e.g. Harvest Fund Management, CSOP Asset Management (China Southern AM), China AMC, ARC China, Azimut, HSBC and Global Wealth Management.

In addition, Luxembourg is the domicile of investment funds investing in RMB denominated assets but whose share classes are hedged against other currencies such as the EUR or the USD.

Luxembourg is also the primary domicile in Europe for Chinese Equity ETFs, ranking third in the world (outside China) after Hong Kong and the US. As of 31 March 2014, there were 27 ETFs in Europe offering Chinese equity exposure, of which 16 are domiciled in Luxembourg. According to Morningstar, nearly all (13 out of 14) of the ETFs investing in the onshore Chinese market (A-Shares) in Europe are domiciled in Luxembourg.

Dim Sum bonds

Today, many established international companies are issuing Dim Sum bonds as part of their global funding programmes, thus diversifying at the same time their investor base. As many of them already listed debt securities in other currencies on the LuxSE, they continue to use the quick and efficient process of the Luxembourg Stock Exchange for their RMB denominated listings.

The LuxSE ranks forth with a market share of 12% of the global Dim Sum bond listing right behind its Asian peers from Hong Kong, Singapore and Taiwan, confirming its strong position as the leading exchange for international debt securities.

In fact, Luxembourg is the leading centre for international bond listings. About 40% of all international bonds on the European market are listed on the Luxembourg Stock Exchange (LuxSE), making it the prime listing venue for international issuers.

The LuxSE was the first European stock exchange to list a "Dim Sum Bond" in May 2011. In May 2014, Bank of China in Luxembourg listed its first offshore-RMB “Schengen” bond on the Luxembourg Stock Exchange. Bank of China was thus the first Mainland China company to launch its RMB bonds in the Eurozone.

In recent years LuxSE signed a number of MoUs, namely with the Hong Kong Stock Exchange in 2001, the Shanghai Stock Exchange in 2006, the Shenzhen Stock Exchange in 2013 and in 2014 with the Bank of China Luxembourg and the GreTai Securities Market in Taiwan.

Loans & deposits

Today, many European corporates have recognised the potential of RMB products with regard to risk diversification. Most Luxembourg banks are able to offer cross-border renminbi services.

Luxembourg is holding the largest RMB pool of RMB deposits and loans in Europe. The high number can be explained by the Chinese banks using Luxembourg as a center for granting RMB denominated commercial loans to their European customers. While the initial focus was put on trade finance activities and commercial loans, a few banks expanded their product range to the syndicated loan market in 2012.

Compared to other offshore RMB denominated products, such as deposits or bonds, the overall share of loans and trade finance remains rather small. However, in 2014, more than 20% of China’s export-import trade was conducted in RMB. The RMB is now the second most used currency in trade finance. Using the renminbi as a trade finance currency has many advantages for both Chinese and European business partners. CNH accounts enable both sides to avoid foreign exchange transactions and thus currency risk. Payments can be processed faster within the European time zone and often, foreign companies paying in CNH get discounts on their invoices from Chinese companies.

Nearly 50 countries now use RMB for more than 10% of their cross-border payments with Mainland China and Hong Kong. In 2014, RMB payments grew in value by 102% compared to an overall yearly growth for all currencies of 4.4%.

International RMB payments between offshore trading centres increased by 837% over 2013/14. Luxembourg ranks second behind Singapore in international RMB payment flows sent and received excluding China and Hong Kong.

Clearing & Settlement

Luxembourg is the largest RMB securities settlement hub in Europe. RMB securities settled and held in Luxembourg belong to a diversified base of international institutions.

In 2014, the People’s Bank of China designated ICBC as the Luxembourg clearing bank. It will be a complementary service to Clearstream, the Luxembourg-based international central securities depository (ICSD).

Clearstream was the first ICSD to support full RMB settlement. Many of the bonds issued and sold in other international financial centres are cleared and settled in Luxembourg. For instance, the first dim-sum bond listed in London was issued and distributed in Luxembourg. Clearstream also provides RMB bond collateral management to the Hong Kong Monetary Authority (HKMA).

For the RMB currency to become truly international, both the offshore RMB bonds and currency need to become more liquid and more dynamic, attracting larger and more diverse participants. By leveraging its market infrastructure, client base and global partners, Clearstream is already directly taking action to increase the liquidity of the offshore RMB currently available in the international market.