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Luxembourg’s main advantage in the context of RMB settlement is that you have an extensive and mature ecosystem of financial services providers.

Jan Willems, Head of Product Management, Global Markets at Clearstream

Since 2013, the PBoC began to designate overseas subsidiaries of Chinese banks to act as offshore RMB clearing banks. In Luxembourg, ICBC Luxembourg Branch functions as the official RMB clearing bank.

Clearstream: connecting Chinese and international investors and issuers

Clearstream has been offering the offshore RMB as a settlement currency since September 2010. Since then, Clearstream has expanded its Cash Correspondent Bank (CCB) network internationally, with three located in Asia and two in Europe, providing liquidity access across different time zones. In November 2012, Clearstream acted as the sole and exclusive International Central Securities Depository (ICSD) for the primary issuance of an offshore RMB-denominated Eurobond, which was the first Dim Sum Bond issued by a Chinese bank outside of China and Hong Kong. In 2016, Clearstream supported the Chinese ministry of finance in issuing its first offshore RMB bond.

Recently, it has been growing its access to the Chinese onshore market for its RMB settlement business. In 2014, Clearstream set up the first connections to the Shanghai-Hong Kong Stock Connect program. Following that the access was extended to the CIBM. In October 2016, Clearstream launched its China Bond Link, providing unique ICSD access to eligible institutional investors to enter CIBM without any quota restrictions. Later in 2016, Clearstream added its connection to the Shenzhen-Hong Kong Stock Connect program. In 2017, Clearstream successfully launched access to the Bond Connect program, allowing foreign investors to invest in the Chinese onshore bond market via Hong Kong. In addition to the core RMB settlement services, Clearstream also provides collateral management, funds order routing (Vestima) services for all asset classes denominated in CNH.

The recent incorporation of RMB into the SDR basket has led to increased demand from central banks for RMB-denominated products. Regulatory approval for UCITS funds to invest in Chinese instruments, coupled with developments like CIBM access and the Mutual Recognition for Funds programme, increased the interest certain fund managers have with regard to RMB products. Clearstream is beginning to see a move from offshore instruments to onshore instruments as access restrictions are lifted on a gradual basis.

In April 2016 and March 2017, Clearstream signed MOUs with Shanghai Clearinghouse (SCH) and China Central Depository and Clearing Company (CCDC) to tighten the cross-border corporation partnership. According to Shui Ruqing, Chairman of CCDC, it provides opportunities “for both institutions to provide better cross-border depository and settlement services for RMB fixed-income products based on their respective platforms”. The link will also facilitate the CIBM investment process for international investors.

Overall, China, especially the onshore market, remains relatively untapped by foreign investors and so Clearstream expects substantial volume increases over the coming years.

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