China, UK offshore yuan deal gives London a boost
Print Edition
China and Britain yesterday agreed to open more investment channels and direct trading between the two currencies as London works to consolidate its status as the leading financial hub amid the rise of yuan.
China will allow London-based financial institutions the right to buy up to 80 billion yuan (US$13 billion) worth of mainland stocks, bonds and money market instruments through the Renminbi Qualified Foreign Institutional Investor program, or RQFII, according to a joint statement released yesterday after a meeting between British Finance Minister George Osborne and Chinese Vice Premier Ma Kai.
It will be the first time that the program is being expanded beyond Hong Kong to widen the investment options using the yuan as China looks to boost the currency’s global use.
“My ambition is to make sure London is the western hub for yuan business,” Osborne said during a media briefing after the meeting. “Today we agreed the next big step in making London a major global center for trading and now investing the Chinese currency.”
Britain and China signed an agreement in June to have their central banks swap 200 billion yuan for 20 billion pounds.
The European Central Bank and Beijing announced a similar agreement this month to swap 350 billion yuan for 45 billion euros. That suggested Frankfurt also might be in to become a center for business denominated in yuan.
Talks are also ongoing to enable Chinese banks to establish branches in the UK for the first time and allowing them to scale-up their business activities, he added.
Under the agreement, the two countries will also allow direct trading between the yuan and the British pound, as opposed to using the dollar as an intermediary, reducing transaction costs and risks stemming from the US dollar.
The pound will be the fourth major currency to have direct trading links with the yuan, after the greenback, Japanese yen and the Australian dollar.
Trading between the Australian and Chinese currencies started in April, while yuan-yen trades began in June 2012.
“The renminbi will now have a firmer footprint in the European market,” an ANZ report said yesterday.
“With the increasing presence of Chinese banks in London, the granting of the RQFII license will strengthen and widen the platform for London to develop the offshore yuan bond market.”
Started in 2011, the RQFII now has a global quota of 350 billion yuan, of which only 134 billion yuan is utilized.
The announcement came in the middle of a five-day British trade mission to China led by Osborne. On Monday, Britain unveiled simpler visa rules aimed at luring Chinese tourists.
Li Wei, an economist with the Standard Chartered Bank, said the agreement to start direct trading between yuan and British pound marks an acceleration of the globalization of the yuan, which will help set a fairer exchange rate between the two currencies and boost yuan trading in London.
“China’s central bank has shown resolution to drive exchange reforms by maintaining gradual appreciation of the yuan this year despite slower export growth,” said Li.
The yuan yesterday strengthened against the US dollar to a 19-year record of 6.1011, beating a previous record of 6.1073 reached on Monday.
The daily value of yuan trading in London now stands at around US$5 billion a day — double the daily volume a year earlier, Osborne said, citing data from HSBC Holdings Plc.
Data from financial services provider SWIFT shows London accounts for 62 percent of yuan trades outside China’s mainland and Hong Kong.
The yuan has become the ninth most-actively traded in the world, up from 17th in 2010, according to a September report by the Bank for International Settlements.
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