SAN FRANCISCO -- Known for its tech prowess and liberal politics, San Francisco is hoping to claim a new mantle: North America's first offshore hub for trading in China's currency.
During a recent visit here, Hong Kong's secretary for financial services and the Treasury, K.C. Chan, met with business leaders to discuss the prospects for San Francisco to pioneer transactions in RMB, or renminbi. If successful, the move promises to open the floodgates of increased trade, investment and job creation in the Bay Area, but could also pour more liquidity into property markets already tipsy on tech wealth.
“Whether you’re going to be opening a savings account in RMB, conducting trade in RMB, or just taking in money from China for an investment, we want San Francisco to be the hub where all of that happens freely,” Darlene Chiu Bryant, executive director at ChinaSF, a public-private partnership spearheading the initiative, told The WorldPost.
China’s currency has historically been tightly controlled by the Chinese government, which limits capital flows and essentially sets exchange rates. But over the past decade, as China has looked to liberalize its own financial markets and popularize the use of the RMB abroad, the country has established offshore RMB hubs in Hong Kong (the first and most popular), London, Singapore and Frankfurt. These hubs facilitate the depositing, converting and investing of China’s currency outside of mainland China.
If San Francisco were to establish a hub of its own, local companies exporting to China could choose to be paid in RMB, which they could then convert to dollars or reinvest in China. Chinese investors could also dip into a wider variety of local markets through RMB holdings in the United States. Advocates for the hub say it will be particularly beneficial for driving new investment around the Bay Area, throughout California and eventually across the whole continent.
“It’s a much-needed thing, and if it happens the ripple effects will be huge, clear across the United States,” said Philip Wong of the Bank of Communications in San Francisco, a Chinese bank that has pioneered dual-currency accounts in the city. “It would open more doors for businesses from China, and it’ll trickle way up north to Canada and then down into Latin America.”
But a surge in Chinese investment in San Francisco comes with perils in a city struggling to adapt to the massive influx of tech wealth from Silicon Valley. Over the last year, some residents have revolted against a tech invasion that has dramatically reshaped neighborhoods. Chinese homebuyers have contributed to rising home prices in some Bay Area cities, despite being subject to currency controls that limit the money they can move offshore. If controls were lifted, a simultaneous surge in Chinese investment and influx of high-paying finance jobs could add to local tensions.
"Currency traders are always the highest paid financial professionals, and if you see a couple hundred or a couple thousand of them moving into the downtown or Mission District area then it's going to make some of these conflicts even more intense," Stanley Kwong, managing director and professor of the China Business Studies Initiative at the University of San Francisco, told The WorldPost.
Kwong noted that locating the hub in San Francisco could bring about dueling effects in the city: While it would bring in more finance jobs and real estate investors, Chinese businesses would also likely bring more housing units onto the market, taking some heat off of housing prices.
Advocates for the hub say that the move would spread benefits evenly throughout the city, creating the blue-collar jobs that are increasingly hard to find. In the past year, investments from China have funded some of the largest housing development projects under construction in both Oakland and San Francisco.
“I think the hub will do more to create jobs for San Francisco and the Bay Area than it will drive up prices,” Bryant of China SF said. “Once you start bringing more construction jobs, there are more people spending money and more people moving in. It’s a good thing.”
San Francisco is reportedly competing with cities like Toronto and Vancouver to be the first RMB hub in North America. America’s traditional financial capital of New York has yet to throw its hat in the ring. Representatives from San Francisco Mayor Ed Lee’s office did not respond to a request for comment, but the gears appear to be turning behind the scenes; Bloomberg reported last fall on meetings between Lee and representatives from the Bank of China, a group that has taken the lead on past offshore RMB projects.
“When you think about what’s lacking, what’s needed to complete the picture, it’s North America,” Chan told The WorldPost during the recent visit to San Francisco. “Traditionally, we think about New York, but it could be any city in North America.”
Analysts point out that in order for RMB exchanges to be available at all times of the day, a North American hub is required to link exchanges in Asia with those in Europe. Professor Yin-Wong Cheung of the City University of Hong Kong said that San Francisco in particular has several advantages for being an RMB hub: the Bay Area’s strong business links with mainland China, a large and deeply integrated Chinese-American community, and a blossoming relationship between state leaders and their counterparts across the Pacific. In the past year, both Lee and California Gov. Jerry Brown have led well-received trade delegations to China.
San Francisco may lack the high-flying finance markets of New York and London, but trade and investment from China have flourished there in recent years. Analysts estimate California could receive up to $60 billion in Chinese investment by 2020. By focusing on tangible trade and investment, advocates for the hub hope to avoid entanglements with the federal government required for bilateral financial exchanges.
“San Francisco would not necessarily have an offshore RMB hub the way that Hong Kong and London do, because a lot of that is done via currency swap agreements between the two countries,” said Bryant of ChinaSF. “If San Francisco were to do it we’d do it on a more commercial level. There’s demand here and the question is, how does San Francisco become a hub without getting the federal government involved?”
Although there is no clear timetable for the creation of a North American RMB hub, analysts say that China’s positive experience with other hubs coupled with its drive for financial reforms at home could drive the project in coming years.
“My feeling is that this is going to happen much faster than in the past couple of years,” Chan said. “The first couple of years were trying out and testing the water, but with the RMB market in Hong Kong developing very nicely ... it’s a good time to see an acceleration of the process.”