City of London’s $10tn Chinese hub plans for growth

Skyscrapers and buildings on the City of London skyline. The UK’s relations with China may be at a low ebb but China Construction Bank Corp’s City of London outpost is banking on ever closer financial flows between the two countries.

The UK’s relations with China may be at a low ebb but China Construction Bank Corp’s City of London outpost is banking on ever closer financial flows between the two countries. The branch is the sole renminbi clearing bank in the UK, making it an essential conduit to potentially staggering flows of Chinese money and investment. It has cleared some 64tn yuan ($10tn) of transactions since 2014 – the largest volume outside of Asia – and its top UK executive is planning for growth. Yang Aimin, who has run the UK operations of China’s second-largest lender since 2018, said in an interview last week he is targeting double-digit clearing volume growth in 2022 after it grew 18% last year to 11.9tn yuan. He’s also expecting the business of servicing Chinese companies listed in London to grow. “Hong Kong has embarked on a path that can be largely replicated by London,” he says, noting the existing Shanghai-London Stock Connect – which enables Chinese firms to list in the UK and vice versa – could ultimately open the door to a similar arrangement for trading bonds. His ambitions are good news for the City of London, which is looking to burnish its credentials as the international finance centre of choice now it sits outside the European Union. The UK government has long sought to lure Chinese investment, a process that started in earnest in 2014 with a deal allowing CCB to facilitate offshore yuan clearing in London and the issuance of a 3bn yuan bond in London in 2016, the first sovereign RMB bond issued outside of China and Hong Kong. The mood music has soured somewhat in recent years, with British lawmakers growing increasingly wary of closer ties with China. The UK will join countries including the US and Australia in a diplomatic boycott of the Winter Olympics in Beijing, amid growing criticism of China’s human rights record, including the crackdown in Hong Kong. But Yang remains hopeful on the outlook for closer financial ties, saying one way the UK could encourage more investment is to allow renminbi bonds to be accepted as collateral in UK markets. That could bolster the amount of renminbi holdings and promote more trading in all types of yuan assets. “We have discussed the collateral inclusion many times with UK authorities over the years, I hope they can feel our sincerity and act quickly,” the 56-year-old Harvard graduate said.   CCB provides foreign exchange and clearing services to the four Chinese listings in London including Huatai Securities Co and China Pacific Insurance Group Co, and Yang would welcome more dual listings in London, although other options are proliferating. Last month, the China Securities Regulatory Commission announced an extension of the Stock Connect programme to eligible listed companies in Germany and Switzerland, paving the way for such listings elsewhere in Europe. The Hong Kong-listed shares of China Construction Bank, which has a market value of about $193bn, are down about 3% in the past year. And London remains a relative minnow when it comes to offshore renminbi trades. Hong Kong dominates with three quarters of the market with the UK in second place on 6.6%, ahead of Singapore’s 3.3% share, according to data compiled by the Society for Worldwide Interbank Financial Telecommunication, or SWIFT. It’s a familiar challenge for Yang, who spent his early career at CCB promoting the use of renminbi interest rate swaps, a hedging tool common in global markets that didn’t exist in China until 2006. Yang said he found himself pitching the products repeatedly during his stint as deputy general manager of trading at CCB’s Beijing headquarters.