HK Alleviates RMB Depreciation Pressure as Mainland Capital Outflows Rise
(27 June 2024 – Hong Kong) The Chinese Renminbi (RMB) is facing its highest level of capital outflow in eight years despite a surge in offshore RMB remittances from Hong Kong (HK) to mainland China, offsetting some of the currency’s building downward price pressure to depreciate further.
Corporates are hesitant to convert their US dollar holdings into RMB, pushing the currency’s foreign settlement ratio down to 60 percent in May 2024, the metric’s lowest level since 2017 according to Natixis. Monthly yuan remittances from Hong Kong to mainland China amounted to US$1.28 trillion in April 2024, surging 117 percent from US$588 billion in September 2023, Natixis estimated.
An expansive interest rate differential between the US and China, weak confidence in China’s economic outlook and perceptions of geopolitical risk over using the RMB have contributed to the trend and stymied progress on RMB internationalisation in H1 2024.
“The key takeaway is that Hong Kong’s role as an offshore yuan centre has been used to support the yuan” commented Natixis Senior Economist Gary Ng.
“There’s strong momentum supporting the yuan. It’s hard to see where this money is coming from or where it goes; we don’t observe an overall increase in yuan deposits in Hong Kong. At the same time, remittances of yuan from Hong Kong to the mainland have grown massively. I think the key takeaway is that Hong Kong’s role as an offshore yuan centre has been used to support the yuan” Ng added.
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