Why Hong Kong Banks Are Yearning for the Yuan

Leo Lo, co-founder of a Hong Kong clothing maker whose customers have included Baby Dior, says he was surprised when five senior bankers visited his office this year in an industrial district of Kowloon offering to buy him lunch. Last year companies such as his Wenlo’s Apparel Manufacturer had to chase after lower-level executives—and meals usually went on clients’ tabs, he says. Now, lenders are pursuing him to offer loans, trade-settlement, hedging, and investment opportunities in the Chinese currency as they vie for a bigger piece of Hong Kong’s expanding market for the yuan, also known as renminbi. “Banks are under pressure to compete,” says Lo, who rejected entreaties from Citigroup, Hang Seng Bank, and Standard Chartered Bank and decided to stick with his three current banks, which he declined to name. “They’re getting ready for the race. They know that renminbi is their future.”

The yuan may become one of the world’s top three global-trade currencies in the next five years, according to a report by HSBC Holdings, which estimated that as much as 50 percent of China’s trade may be settled in the currency by 2015, up from 10 percent in the first quarter of this year. Banks in Hong Kong managed 571.2 billion yuan ($90 billion) in offshore trade in the first quarter, up from less than 50 billion yuan two years ago, according to the Hong Kong Monetary Authority.