Bank of China’s inclusion on the inaugural list of 29 “G-SIFIs” – global systemically important financial institutions – may have caused some raised eyebrows around the world. Sure, BoC is big, with Rmb11,530bn ($1,816bn) of assets. But ICBC and CCB (not on the list) are bigger, by that measure. Neither does BoC seem to fit the Financial Stability Board’s requirement for “complexity.” Like most of China’s state-owned lenders, it pursues a pretty unexciting mix of corporate, personal and trade finance. And as for “systemic interconnectedness,” with 95 per cent of its assets in greater China, BoC is easily the most insular on the list.
What does set BoC apart, though, is its role as intermediary in the internationalisation of the renminbi. Last week the bank’s 66 per cent owned subsidiary, BoC (Hong Kong), was reappointed by the People’s Bank of China to be the sole clearing bank for all renminbi transactions in Hong Kong, a role it has held for the past eight years. Over that period, the amount of renminbi circulating offshore has gone from almost nothing to Rmb622bn as of September, or just over one-tenth of total deposits in Hong Kong. But crucially, two-way flows across the border remain subject to rigorous controls. Domestic residents are officially limited to an annual quota of US$50,000 in foreign currency, for example, while any foreign-direct investment inflow exceeding Rmb300m still needs approval from the Ministry of Commerce. As UBS notes, China’s remains one of the most closed capital-account regimes of any developing economy.