SHANGHAI : Beijing will
promote the further development of the offshore yuan market in Hong Kong as
part of a new package of policies for the territory ahead the fifteenth
anniversary of its return to China, the official Xinhua agency said today.
Since Britain handed back the
colony on July 1, 1997, the city’s economy has grown increasingly intertwined
with that of mainland China, and Beijing has been eager to use the financial
centre as a testbed for major reforms, such as its growing push to
internationalise the yuan currency.
“On financial cooperation,
the government will support the third-party to use Hong Kong as an venue to
settle trade and investment in renmnibi (yuan) and further enrich the offshore
renminbi products in Hong Kong,” the Xinhua report said, without giving further
details.
The move to expand offshore
use of yuan will further secure Hong Kong’s place as a major international
financial centre, said Andy Ji, currency strategist at Commonwealth Bank of
Australia in Singapore.
It also “will help boost
renminbi demand in general as more instruments (for yuan-related investments)
are made available,” he said.
London and other financial
centres like Singapore are also vying for a share of the rapidly growing
offshore yuan market.
Shen Minggao, China economist
for Citigroup in Hong Kong, also said that the development would be good for
offshore yuan liquidity in Hong Kong, which is showing signs of flagging after
several years of explosive growth.
Though the yuan is still
tightly controlled by Beijing, offshore yuan deposits at banks in Hong Kong had
boomed in recent years as China slowly relaxed its grip on the currency,
encouraging it to be used more often in settling international trade and for
certain investments.
Such deposits have declined
steadily this year, however, as China’s economic growth has slowed and as the
yuan’s appreciation against the US dollar ground to a halt, sharply reducing
its investment appeal.
Hong Kong’s own economic
growth is expected to slow to 1-3 per cent this year from 5 per cent in 2011,
according to government estimates, as volatile global financial markets, bleak
economic prospects in Europe and weaker growth in China and the United States
all weigh on the highly open economy.
Cross-Border
Investment
CHINA also will promote the
mutual listings of exchange-traded funds (ETFs) on Hong Kong and mainland stock
exchanges, the Xinhua report said.
Chinese investors can
already buy overseas stocks and bonds by investing in funds available under the
Qualified Domestic Institutional Investor (QDII) scheme, but cross-border ETFs
are expected to be easier to trade because they will be listed directly on
Chinese bourses.
In addition, Chinese
investors hope the new ETFs will provide better returns than the current batch
of QDII funds. CSRC vice-chairman Yao Gang was quoted in local media yesterday
as saying that overall QDII fund performance to date had been “not ideal.”
However, no such funds have
yet received formal approval, nor did the report mention whether the QDII quota
will be increased.
China will also make it
easier for Hong Kong’s long-term funds to invest in the mainland’s capital
markets, the Xinhua report said.
Such liberalization is part
of a concerted effort by Beijing to attract more foreign capital into mainland
equity and bond markets through the Qualified Foreign Institutional Investor
(QFII) programme and its offshore-yuan denominated cousin, the Renminbi
Qualified Institutional Investor (RQFII) programme.
Both programmes have seen
their quotas increased and their allowable scope of investment widened this
year.
Even so, analysts say their
small size mutes their impact on stock indexes.
QFII regulations currently
limits net foreign investment through the programme to US$80 billion (RM255.49
billion), but only US$25.19 billion had been allotted as of April 16, according
to the country’s foreign exchange regulator. The total RQFII quota stands at 80
billion yuan (RM40.14 billion). (Reuters)
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