MARK Boleat, the man in charge of developing London’s offshore yuan-trading center, said the initiative is thriving even as the British capital faces competition from other European cities eager to get a piece of the action.

Boleat is policy chairman of the City of London Corporation. He was in China last month to hold discussions with the People’s Bank of China on offshore yuan trading and the internationalization of the Chinese currency.

During his stay, he agreed to an interview with Shanghai Daily to discuss yuan trading, British investment in China, Chinese investment in London and the development of the Shanghai Pilot Free Trade Zone.

“We see an increasing two-way flow of yuan activity between Britain and China,” said Boleat. “We expect much more Chinese activity in London as British institutions keep expanding in China.”

Q: What is the major driver of two-way yuan flows between Britain and China?

A: The Chinese economy is growing rapidly. China is now one of the world’s largest exporters and importers. The volume of Chinese trade with Britain has increased hugely, and that trade needs to be financed. That’s one of the key points.

Secondly, the Chinese authorities clearly want to liberalize financial markets, and they are doing it in a staged process. They want to see the offshore yuan market develop, and they see London as the right place for that to happen. Without those two things, we wouldn’t have the progress we have had. London is the world’s biggest foreign-exchange center by a long way. It’s natural that London wants to be very active in the market for yuan.

Q: How would you describe the development of yuan products in London?

A: Most of the growth of yuan business has been in trade finance. Deposits have not increased substantially. We have some corporate bond issuances. In terms of other products, we are not nearly at the same level as Hong Kong, but I think that will come over the years.

Q: What’s the outlook for London as a leading offshore yuan center, given the fact that more centers are emerging in Europe?

A: London is the leading Western offshore center for yuan trading because it is the leading center for all foreign-currency trading. Another jurisdiction cannot just create an offshore yuan business out of nothing. You are not going to see Rome suddenly becoming an international center because there’s no major foreign-exchange business in Rome. Also, London has the full support of Chinese authorities. Premier Li Keqiang reaffirmed that just weeks ago.

There will be other centers, including Frankfurt, Paris and Luxembourg, as well as others in Asia. That’s very good because there is a lot of business to be done. We don’t see this as London competing against Frankfurt. That is not on our mind — ever. What we are looking at is to build the business as quickly as we can by providing the services the banks want. If other centers are doing the same thing, that’s beneficial for the internationalization of the yuan.

Q: Do you think the recent turbulence in the yuan and uncertainties about the Chinese economy might discourage British investment confidence in China?

A: No, they have had no effect on confidence at all. The yuan’s fluctuation is merely an indication of the market at work. For a long time, the assumption was that the Chinese currency was undervalued, which made it a very attractive currency to hold because clearly there would be appreciation. It’s the wish of the Chinese authorities that the yuan should be fully convertible. In that case, it will go up and down just like the pound sterling, the US dollar or the euro do. The currency is made more attractive if people know that rates are set by the market and not by administrative means.

Q: Are British institutional investors interested in China, given the lame performance of the stock market here?

A: Yes, British institution investors are very interested. We would like to see a bigger RQFII (RMB Qualified Foreign Institutional Investors) quota. I’m sure if the quota were increased, the market would be taking it up. The concern is not whether shares will go down over a period, but whether there are enough shares that are properly tradable. Although there are some big companies in China, many of them, as you know, are state-owned. The objective of state-owned companies may not be 100 percent to make profits. They may do other things. It makes them less attractive as investments because it’s hard for institutional investors from Britain or other parts of world to predict how the shares will perform.

Q: What’s your view on the development of the Shanghai Pilot Free Trade Zone?

A: I know more about the Shanghai FTZ than I did yesterday, but I still find it difficult to understand. We know it’s a pilot. It’s not established in a definitive form. That’s how the Chinese authorities tend to do things. They know they want to be somewhere, such as liberalizing the financial markets. They see the pilot FTZ as contributing to that. But as far as financial services are concerned, you can’t confine them to a small physical area. So we are not certain how that’s going to work. But, in general, we have British institutions that have welcomed the move. It’s a clear indication of opening up the market. Quite a few international banks and insurance companies are locating there. They are going to see how it works.

Q: The Shanghai Gold Exchange will soon launch its international trading board in the FTZ. Do you think there will be any impact on the London market?

A: China is a very big buyer and producer of gold, so it seems very sensible that China should be fully involved in gold markets, including London’s. If a market is set up in China’s mainland or in Hong Kong and that poses a competitive threat to the market in London, that’s just the way markets work.

We know that the London Metal Exchange is now looking at developing gold contracts in yuan, which would be very welcome. Any market is vulnerable to a new market being established. But the market in London has been around for a very long time. People know how it works. No other jurisdiction can suddenly say, ‘We have a new market. Everybody use it.’ It’s got to be built up over time. I’m sure when the market is developed in Shanghai, this part of the world will get business.

Q: Does London want to attract more Chinese investment?

A: Britain is a completely open economy. There are no quotas, no quantitative restrictions. So if someone from China wishes to buy our largest bank, they can buy it. The British government will be very pleased, probably. Equally, if a Chinese life insurance company wants to buy a big office block in London, they can do it. And that’s what has happened.

Because there are no restrictions, we don’t need to go out to attract investment. London is already very attractive indeed — perhaps even a bit too attractive at the moment to institutional investors from around the world. We are getting significant investment from China. In terms of how it’s financed, mechanism operations can be arranged. I don’t see any obstacles.

Q: Do you think Chinese investors have contributed to the housing bubble in London?

A: Not as much as the Russians. Britain, not just London, is what we call a safe haven. If people for any reason want to get money out of their own country, they look to London. We know many wealthy people from all over the world want their children to go to schools and universities in London. They often want somewhere to live. Part of the London property market is driven by that external demand. But that’s only central London. Chinese purchasers have been significant there, but that doesn’t affect most of the market. It’s only central London.