Hong Kong Lenders Urge Beijing To Lift Restrictions On Yuan

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

22 May 2003

Lenders from Hong Kong have urged the authorities in Beijing to lift restrictions on the trading of the Chinese currency, the yuan, so that banks can access an estimated $10 billion worth of yuan currently in limbo in the territory.

As more and more Chinese head for the ex British colony for leisure and work (arrivals from the mainland hit a record 6.83 million last year according to reports), the demand for a currency exchange featuring the yuan is growing. Some retailers in Hong Kong are beginning to accept the currency, such as supermarket chain ParknShop which then ships the yuan back to China to fund purchases. Nevertheless, banks are still not permitted to take deposits in the currency which has allowed a 'grey market' in the yuan flourish.

However, it is thought by some in Chinese officialdom that a fully fledged market in yuan exchange is an inevitabilty: "Renminbi (or yuan) circulation in Hong Kong has become a reality, so to create an overseas yuan market is something that is going to happen sooner or later," an official from the Chinese State Administration for Foreign Exchange told Reuters.

The Chinese government has traditionally been unsupportive of open trading of the currency on an offshore market, fearing large outflows of funds could lead to potential volatility and de-stabilise the yuan. Despite this, other analysts beleive that Beijing will allow a gradual shift towards trading of the yuan by stipulating that only state controlled Hong Kong banks (such as BOC Hong Kong (Holdings) Ltd) repatriate the currency back to China's central bank, as opposed to thier own branches on the mainland.

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