An Empirical Examination of Factors Driving the Offshore Renminbi Market

Abstract

Following the 2010 establishment of the offshore renminbi market in Hong Kong, renminbi deposits there quickly rose above RMB 1 trillion. In this paper we examine fluctuations between the offshore value of the renminbi in Hong Kong and its onshore value in mainland China. The size of the spot market spread appears to be influenced by stock market sentiment as reflected in the spread between A-share listed in Shanghai and H-shares listed in Hong Kong. There is also some evidence of a link between the spread and the pace of renminbi deposit growth in Hong Kong.

Note: *An earlier version of this paper was presented at the annual meetings of the Western Economic Association in Honolulu, Hawaii, June 28-July 2, 2015. The authors thank Tom Willett, Leroy Laney, Niv Horesh and an anonymous referee for helpful comments.

Keywords: China; renminbi; offshore market; Hong Kong; Shanghai

JEL Classification: F31