China Set To Approve Expansion Of Renminbi Services In Hong Kong

by Mary Swire, Tax-News.com, Hong Kong

02 January 2007

Hong Kong Chief Executive Donald Tsang has said that "positive feedback" has been received from Beijing regarding further expansion of renminbi business in the city during 2007.

Tsang has asked the Mainland authorities to consider allowing Hong Kong importers to settle direct import trade from the Mainland in renminbi, and allowing Mainland financial institutions to issue renminbi financial bonds in Hong Kong.

Speaking in Beijing last week, Tsang said he discussed the two initiatives with monetary officials and received positive feedback. He indicated that announcements on new renminbi business could be made soon.

Tsang also discussed how to encourage Mainland banks and enterprises to make listing applications in Hong Kong and said Mainland authorities agreed to speed up the procedures for approving qualified Hong Kong companies' applications to operate in the Mainland.

While the easing of restrictions on yuan trading and services has been frustratingly slow for many businesses in Hong Kong and China, the SAR believes that the current liberalisation process will eventually lead to the currency becoming fully tradeable in Hong Kong.

Speaking earlier this year, Hong Kong's Monetary Authority Chief Executive Joseph Yam suggested that as the currency of one of the largest economies of the world, the renminbi will become an international currency, and argued that the declared policy of gradually introducing convertibility for capital account items of the balance of payments will help it to achieve this status.

He said the use of renminbi by Mainland residents for consumer spending outside the Mainland, particularly in Hong Kong and Macau, and in foreign cities on the Mainland's border, is increasing.

"There is a possibility that in the fullness of time, when the Mainland develops into one of the major economic powerhouses of the world, the renminbi may even become a reserve currency, just like the US dollar, the euro and to a lesser extent the yen are now, and an anchor currency for the region," Mr Yam predicted, continuing:

"I believe that this process is an inevitable one. As an international financial centre, Hong Kong must develop its capability to handle financial transactions denominated in the renminbi, which will increase. This is why we have been pushing hard for the development of renminbi business in Hong Kong and the associated inclusion of the renminbi in our sophisticated, multi-currency financial infrastructure."

He went on to add that the desirability of Hong Kong serving as the testing ground for the renminbi to get onto the world stage has also become clearer, as has the need for Hong Kong to develop its financial infrastructure to cope with the increasing volume of international financial transactions denominated in the renminbi that will inevitably come.

However, the Monetary Authority chief has called for caution over the implications of too rapid financial liberalisation for monetary and financial stability on the Mainland, particularly in the increasingly complex global financial environment, observing that:

"The priority is to get it right, which is important not just to China but also the rest of the world."

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