"The biggest challenge to offshore yuan market next year lies in the stagnant growth of yuan liquidity in the offshore market. As financing cost in Hong Kong gets closer to that of the mainland, it's becoming more difficult to maintain a considerable capital pool for offshore yuan business," Liu said.
She said offshore liquidity has previously mainly depended on trade settlement in yuan, but as yuan-denominated foreign direct investment in the mainland increases and trade growth slows, the offshore yuan pool is shrinking.
The introduction of the pilot program to allow yuan cross-border lending by onshore multinational corporations will help replenish the offshore yuan liquidity pool and is a critical channel in the offshore-onshore yuan circulation mechanism, she said.
Recent capital inflows into Hong Kong could also help lower financing costs in the offshore market, according to Liu.
"For example, since US adopted its third round of quantitative easing policy, the one-year funding cost fell to 2.89 percent from the previous 3.05 percent."
Apart from the market liquidity, China's economic growth, yuan appreciation and financial reform would all pose impact on the offshore market next year, and may lead to a 20 percent slowdown of the offshore yuan business in worst scenario, she said.
And without capital account liberalization, yuan internationalization can only realize 10 percent of its full potential, according to Liu.
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