Agricultural Bank of China : Boarding the Express Train of RMB Internationalization on the new Silk Road Promoting Greater China-UAE Economic and Trade Cooperation

Boarding the Express Train of RMB Internationalization on the new Silk Road Promoting Greater China-UAE Economic and Trade Cooperation

Li Zhenjiang, E.V.P. of ABC

On the occasion of the 10th Anniversary of DIFC, I'm very delighted that DIFC and ABC can jointly hold this New Silk Road RMB International Forum, giving us a platform to exchange views on the economic reform of China, the development of cross-border RMB business and potential investment opportunities. On behalf of Agricultural Bank of China, I would like to congratulate on DFIC's achievements for the past decade. My warmest welcome and heartfelt thanks go to every guest and friend attending this forum today.

Every time I am in Dubai, I feel much at home. This connection does not only come from the fact that Dubai, as an international financial centre, plays an important role in the global financial world, but also because Arab nations and China enjoy time-honored friendship. 2000 years ago, the Silk Road and the maritime Spice Road connected China and Arab nations closely. There are many envoys of friendship connecting the two lands, such as Gan Ying, Zheng He and Ibn Battuta. They set excellent examples for cross-nation friendship and exchanges. Today, modern transportation, diversified cooperation, open and inclusive economic and financial measures inject more vitality and energy into the ancient Silk Road. Continuously enhancing policy communication, transportation, trade exchanges, monetary circulation, and mutual understanding have become a common consensus for China, Eurasia and the Middle East. A more opening China is ready to share its success of economic and financial reform with our Arabian friends. There are three major opportunities for cooperation.

First, the New Normal of the Chinese economy and the new landscape of capital market present lots of opportunities for cross-border RMB investment. In recent years, China has been restructuring its economy while maintaining rapid GDP growth. The economy is transforming from a factor-input-driven one to a reform- and innovation-driven one. The reform of key areas, such as financial and fiscal reform, is deepening. The capital market is speeding up its reform, putting forth a new landscape of active trading and boosted confidence with the capital account becoming more convertible. In line with more policy benefits, cross-border RMB investment presents numerous opportunities and new dynamics. On one hand, cross-border RMB investment in commodities and financial assets is becoming more popular. Currently, RMB-denominated contracts are being used in the International Board of Shanghai Gold Exchange, and will be expanded to the international board for crude oil of Shanghai Futures Exchange, and property exchange, insurance exchange and Foreign Exchange Trading Centre. On the other hand, there have been more diversified mechanisms for overseas investors to invest offshore RMB in China's market. Now over 160 overseas banks have access to China interbank bond market. 6 countries and regions are granted RQFII quotas, and nearly 100 institutions enjoy RQFII status. The incoming Shanghai-Hong Kong Stock Connect will open a new way for foreign investors to access China mainland stock market.

Second, the Middle East and China are highly complementary in their economies, providing huge room for cross-border use of local currencies. China has a large consumption market and rich labor resources. As a net crude oil importer, an important gold consumer and a large source of tourists, China has strong complementarities with the Middle East in economic and trade cooperation. About half of China's imported crude oil is from the Middle East. For the first 2 quarters this year, the number of Chinese tourists to Dubai was up by 26% year on year, the highest growth among all tourists sources to Dubai, with Burj Al Arab Hotel, Burj Khalifa Tower and the duty free shop at Dubai airport as desirable places for them to visit. At the same time China's tea and cell phones are exported to the Middle East and North Africa through Dubai. For 2013 alone, the volume for bilateral trade between China and the Middle East was close to USD 300 billion, and direct investment from the former to the later totaled USD 10 billion. If local currencies can be used to settle such transactions, not only companies from both sides can enjoy lower currency conversion costs, mitigated FX risks and increased settlement efficiencies, bilateral trade and investment can be facilitated as well, boosting respective regional competitiveness as a result. Local currency settlement will be a win-win undertaking for both sides.

Third, Dubai, Shanghai and Hong Kong will join hands to promote financial innovation, drawing a new blueprint for the co-development and mutual benefits of international financial centres. Dubai, on par with New York, London and Hong Kong, enjoys an open economy, efficient management and advanced infrastructure. DIFC has become a dazzling pearl on the Arabian Peninsula. While in China, Shanghai and Hong Kong are grasping every opportunity in cross-border RMB business. The two cities are identifying and further enhancing its competitiveness as international financial centres, with Shanghai being the first free trade zone in mainland China, and Hong Kong being the largest offshore RMB hub. Looking at the global financial arena, RMB has been driving innovations in London, Singapore and Frankfurt. UK became the first western country to issue sovereign bond in RMB, with a total of RMB 3 billion raised in October this year. The size of dim sum bond issued in Hong Kong exceeded RMB 700 billion. Singapore has an RMB deposit balance over 200 billion. And offshore RMB markets in Frankfurt and Luxembourg are also developing very fast. In September this year, ABC successfully issued RMB 1 billion Emirates bond in Nasdaq Dubai, demonstrating the high passion and strong confidence of the Middle East market towards RMB products. We have reasons to believe, Dubai will be another hub for offshore RMB services. By forming stronger synergies in systems, markets, products, etc., Dubai, Shanghai and Hong Kong will join hands and enhance their global influence in international financial market.

If we compare China's reform and opening up as a revolution, then Chinese commercial banks are the firmest revolutionists, the window for exhibiting the achievements of the nation's economic and financial reform, and the bridge for promoting bilateral economic and trade activities and cross-border investment. Next, I'd like to take this valuable opportunity to briefly introduce ABC's efforts in serving China's economic and financial opening up.

First, ABC is among the largest RMB financial service providers in mainland China. ABC is in a leading position among global banks, in terms of asset size, funding capability and market capitalization. Just last week, ABC was incorporated by the Financial Stability Board as a global Systemically Important Bank. As of now, the bank has more than 420 million retail customers and over 3 million corporate customers. The bank has nearly 24,000 branch outlets in mainland China, 13 overseas affiliates in Asia, Europe, the Americas and Australia, and enjoys close relationship with over 1,500 foreign correspondent banks. Its core banking system is among the most advanced IT systems of leading international banks, processing almost 300 million transactions daily, including RMB payments that take up 1/3 market share among Chinese commercial banks. Based on these, ABC has developed diversified and full range of cross-border RMB products, including settlement, financing, inter-bank services, RQFII custody, global cash management, cross-border wealth management, bond underwriting, etc. Its accumulative cross-border RMB settlement volume has exceeded RMB 3.3 trillion since 2009.

Second, ABC is actively setting up its overseas service platform, and is a main force in the development of offshore RMB markets. Ever since its IPO in 2010, ABC has been doubling its efforts in establishing an overseas service platform. In just 4 years, the number of the Bank's overseas affiliates jumped from 2 to 13. At the end of September this year, the total assets of its overseas affiliates reached USD 88.2 billion, 10 times larger than that of 2010. Leveraging on its overseas platform, ABC actively participated in the development of offshore RMB hubs in Asia, Europe and the Middle East. We are the first to launch "zero time difference" RMB clearing service in Europe and the Middle East. We set up the largest global MTN program among all Chinese banks, and successfully issued the first RMB-denominated bonds in Taiwan, Europe and the Middle East. We are among the first qualified clearing banks for the incoming Shanghai and Hong Kong Stock Connect. We are working with London Stock Exchange in developing RMB-denominated GDR, diversifying channels for Chinese companies to get financed overseas.

Last but not least, ABC will leverage on its Dubai Branch and help the RMB business development in the Middle East. Due to its unique geographical position and superior investment environment, Dubai attracts numerous Chinese companies and financial institutions. ABC is one of them. In March 2013, ABC became the first Chinese bank to open a branch in Dubai. In the following one and a half years, ABC Dubai Branch expanded its business in the Middle East and North Africa. Its asset size grew by nearly 500% to USD 4.29 billion, with over 70% denominated in RMB. In the future, we will capitalize on our strengths in Dubai, to continuously provide local customers with premier cross-border financial services, dedicate ourselves to building an offshore RMB centre in Dubai, and strengthen economic and trade partnership between China and UAE, and the Middle East in general.

There is a saying widely accepted by both China and the UAE: alone, you can go faster; but together, you can go further. Faced with the new historic opportunities, let's join hands together to board the RMB express train on the new Silk Road of the 21st century, and contribute to a bright future of the cooperation between the Middle East and China.

(Speech delivered by the author on the occasion of the New Silk Road RMB International Forum, jointly held by Agricultural Bank of China and Dubai International Financial Centre on November 11, 2014 in Dubai.)