2013 – The year of the renminbiEconomic and regulatory conditions affecting the renminbi are unfolding quickly.

This document reflects HSBC’s views on how the development of the renminbi will unfold as of February 2013, based on research by our team of global experts and our extensive daily operations in renminbi.

The renminbi (RMB) – China’s currency – is now part of day-to-day business for anyone trading with or investing in China. The RMB is already an important global trading currency and is set to become a top-three global trading currency by 2015, before becoming fully convertible in 2017 (i). As the world’s second-largest economy, largest exporter and most popular destination for direct investment, China is seeking to internationalise its currency to match the country’s global economic status. The Chinese government is internationalising the renminbi in three stages: developing it first as a trading currency, then an investment currency, and finally a reserve currency. Businesses and investors are already seizing huge opportunities by adopting the renminbi. On 10 February, it will be Chinese New Year, welcoming in the Year of the Snake. Are you ready to develop your renminbi strategy?

Renminbi – what’s your strategy?

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Financial Institutions strategy in renminbi

Redback reform Options to finance and invest in renminbi continue to expand. Growing liquidity and regulatory freedom propel development in offshore markets. Onshore, easing of rules and expansion of regulatory quotas are broadening investing and financing options for international participants.

Add liquidity in renminbi with HSBC

Financial Institutions

Gain exposure to China's growth ('onshore' and 'offshore' investment) Raise finance in offshore and onshore renminbi p6

Manage risksRisk management tools in renminbi p8

Develop your renminbi strategy with HSBC p10

10 January 2013 – first

exchange traded bond fund

permitted in China (ii)

3% – proportion of onshore

equities markets owned

by non-mainland investors,

December 2012 (iii)

USD37.4 billion – QFII

quotas approved for foreign

and offshore investors as of

31 December 2012 (iv)

Offshore accounts/payments and cash management Offshore unrestrictedMore than CNH700bn

in deposits Offshore unrestricted

Onshore bond market

China Interbank Bond Market (CIBM) eligible investors: foreign central banks or monetary authorities, Hong Kong, Macau and Taiwan RMB clearing banks designated by PBoC,

overseas RMB participant banks, insurance companies, QFII, RQFII funds

CNH50trn issued since 2005. 94% of market is interbank Restricted

Dim sum bond market Offshore unrestrictedCNH275bn issues in 2012,

CNH280bn-CNH360bn expected for 2012

Offshore unrestricted

RMB IPOs in Hong Kong Offshore unrestrictedCNH12bn to date from Hui Xian REIT Offshore unrestricted

China A-share market

(Listed shares, bond and warrants; interbank fixed income products; funds, and index

futures traded in China)

QFII RQFII exchange traded funds in Hong KongUSD3.3trn market, average daily trading volume of 11

billion sharesRestricted

Investment possibilitiesMarket size Financing possibilities

*Procedural guidance from PBoC pending 5

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Gain exposure to China’s growth

Where’s the opportunity?

The growing pool of renminbi held outside China has spurred the development of offshore investment products while the easing of regulatory controls continues to broaden options onshore. Offshore deposits now exceed CNH700 billion worldwide while regulators continue to expand access to China’s CNH22 trillion interbank bond market and USD3.3 trillion A-share market. We expect that China’s bond market is likely to double in size in the next five years and that the PBoC will gradually create a single interest rate benchmark in the next three years, leaving all other rates to be freely determined by the market.

How can HSBC help you seize it?

We provide access to the complete range of investments in offshore renminbi in Hong Kong, London and other financial centres, which can be made with no restrictions from Chinese regulators. HSBC is also a leader in onshore investment, which is limited to particular investors and channelled through the QFII and CIBM regulatory schemes.

Access to China’s strong economic growth is available through a growing range of renminbi-denominated products from HSBC, available onshore on the Chinese mainland and in offshore markets worldwide.

Investing offshore

HSBC provides financial institutions wishing to invest offshore with renminbi deposit products, Dim Sum bonds, structured products and money-market funds. Renminbi-denominated equities are also becoming available in Hong Kong. Our solutions include:

Time deposits and certificates of deposits Primary and secondary renminbi bonds

issued offshore FX-linked structured deposits

and notes Interest-rate linked structured deposits

and notes

Equity-linked structured deposits and notes

Commodity-linked structured deposits Renminbi funds Renminbi equities

Investing onshore

HSBC helps investors take positions in onshore capital markets in a variety of assets through the QFII and CIBM schemes.

We can help a wide range of investors gain QFII status and then support their onshore renminbi investment strategy. HSBC provides a one-stop package through our Mainland sub-custodian banking services. Our solution includes global custody, FX arrangement, bond trading and execution, and related investment services.

We also guide and advise financial institutions on the path to gaining CIBM investor status, which allows access to the fixed-income products traded in China’s interbank bond market. The CIBM scheme is open to foreign central banks or monetary authorities, Hong Kong, Macau and Taiwan RMB clearing banks designated by PBoC, overseas RMB participant banks, insurance companies, QFII, RQFII funds.

11,600 – number of participants in China’s interbank bond market (v)

Build your China portfolio with HSBC

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Manage risks

Where’s the opportunity?

Deliverable renminbi hedging tools have proliferated as volumes in forex markets have risen and now total USD8.7 billion every day in Hong Kong and USD25 billion daily in mainland China.

How can HSBC help you seize it?

One of the most active participants in offshore renminbi foreign exchange and a registered dealer on the Mainland, HSBC provides financial institutions a complete set of risk management instruments.

Financial institutions can mitigate the risks and manage the costs of their finance and investment in China with a growing range of renminbi currency and interest-rate hedges.

Offshore risk management

Offshore, HSBC quotes deliverable forwards and options up to five years with further tenors available on a case-by-case basis. Liquidity has risen significantly with daily turnover of USD6bn for forwards and USD1bn for options. HSBC offers renminbi cross-currency swaps, liquid up to five years or maximum tenor of ten years. After strong growth, daily turnover in cross-border swaps is now USD200m.

US dollar non-deliverable market

HSBC offers instruments on the US dollar non-deliverable market which predates liberalisation of the renminbi. The prices of deliverable and non-deliverable instruments are converging rapidly as the deliverable market develops and becomes the tool of choice for hedging renminbi volatility. Daily volumes of non-deliverables forwards were estimated at USD3bn in December 2012 and options at USD2.5bn in the same month.

Onshore foreign exchange

HSBC serves financial institutions who wish to transact on the onshore foreign exchange market – which has an estimated daily volume of USD25bn for spots and USD3bn for forwards – with deliverable currency and interest-rate hedging tools, including swaps, options and forwards. The bank offers interest-rate swaps with floating-rate benchmarks based on the seven-day repo rate and Shanghai Interbank Offered Rate (Shibor).

Protect your renminbi with HSBC

USD6 billion – daily

turnover in offshore RMB

foreign exchange forwards

and swaps (vi)

¥¥¥ – your renminbi

business opportunity

in 2013

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Develop your renminbi strategy with HSBC

Offshore

We are the number one bookrunner in Dim Sum bonds according to Bloomberg (January 2013)

HSBC is a key member of the steering group that is developing the City of London into an offshore financial centre for renminbi. In 2012, we launched London’s first ever renminbi bond

First to provide continuous streaming of FX rates for six direct offshore RMB crosses on an interbank platform

First to conduct the Tri-party RMB repo with Euroclear (3 Dec 2012)

Investing

We hold QFII and CIBM status and have demonstrated expertise in Chinese securities investment

First and only foreign custodian bank for RQFIIs We work variety of Dim Sum bond issuers to

our investors for diversification

Onshore

Leading foreign bank in China, present on the Mainland since 1865

1st foreign bank to underwrite Chinese government bonds

First and only foreign bank allowed to underwrite commercial paper and medium-term notes

First foreign bank to provide interbank RMB bond clearing / custody services in China

First and only foreign bank as market maker of RMB-Ringgit direct quotation in China

With the renminbi internationalising rapidly, now is the time to make it part of your business. And at HSBC, we have got the field covered:

Won RMB House of Year 2012 – by Asia Risk

(for all RMB products and services)

(i) Source, HSBC, China's Big Bang, November 2012

(ii) Source, Reuters, http://business.financialpost.com/2013/01/09/china-approves-first-bond-etfs-to-grow-debt-market/

(iii) Source, Citywire, http://citywire.co.uk/global/demand-for-china-s-onshore-market-to-surge-says-allianzs-chung/a643805

(iv) Source, Z-BEN, http://www.z-ben.com/zedalerthk/index.php/1685

(v) Source, Chinabond, June 2012

(vi) Source, HSBC Emerging Markets Currency Guide 2012, http://hsbcnet.com/gbm/attachments/rise-of-the-rmb/currency-guide-2012.pdf?WT.ac=CIBM_gbm_pro_rmbrise_pbx01_On

Get in touch

Set out your thoughts on how 2013 will be your year of the renminbi, and get in touch to make renminbi part of your business.

CNH is the name used in the market to refer to offshore deliverable RMB

2013 – your year of the renminbi

Get informedYou can find in-depth views, interviews and news on the state of play for the renminbi at www.hsbcnet.com/rmb

Or contact your relationship manager for more information including access to HSBC’s suite of research products analysing developments in the renminbi.

This document is issued by The Hongkong and Shanghai Banking Corporation Limited (HSBC). The information contained herein is derived from sources we believe to be reliable, but which we have not independently verified. HSBC makes no representation or warranty (express or implied) of any nature nor is any responsibility of any kind accepted with respect to the completeness or accuracy of any information, projection, representation or warranty (expressed or implied) in, or omission from, this document. No liability is accepted whatsoever for any direct, indirect or consequential loss arising from the use of this document. Any examples given are for the purposes of illustration only. The opinions in this document constitute our present judgment, which is subject to change without notice. This document does not constitute an offer or solicitation for, or advice that you should enter into, the purchase or sale of any security, commodity or other investment product or investment agreement, or any other contract, agreement or structure whatsoever and is intended for institutional customers and is not intended for the use of private customers. The document is intended to be distributed in its entirety. No consideration has been given to the particular investment objectives, financial situation or particular needs of any recipient. Unless governing law permits otherwise, you must contact a HSBC Group member in your home jurisdiction if you wish to use HSBC Group services in effecting a transaction in any investment mentioned in this document. This document, which is not for public circulation, must not be copied, transferred or the content disclosed, to any third party and is not intended for use by any person other than the intended recipient or the intended recipient's professional advisers for the purposes of advising the intended recipient hereon.

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