The Hong Kong government is taking steps to boost the competitiveness of the local financial sector by enhancing financial services in offshore yuan and provision of better investment protection.

The government will promote the circulation of yuan through cross-border trade settlement and through direct and equity investment.

Local banks will be encouraged to develop worldwide yuan business networks to consolidate the city's position as a global yuan trade settlement platform.

The policy address also affirmed the government's intention to deepen investment channels on the mainland to facilitate the yuan repatriation process and consolidate the city's status as an offshore yuan financial center.

For example, financial institutions and non-financial institutions will each be granted a yuan bond issuance quota of 25 billion yuan by next year. That will give an additional boost to Hong Kong's status as a premier yuan bond issuance center. The renminbi qualified institutional investor program (RQFII), which allows domestic brokerage firms to invest in mainland equity markets, should be in place by the end of this year. The initial RQFII quota is set at 20 billion yuan.

"The government's proposed measures will make a positive impact in bolstering the city's offshore yuan financial center, though we expect more detailed measures to be given," CPA Australia Deputy President Peter Lee said.

"Regarding the administration of foreign direct investment in yuan, the Hong Kong government should negotiate with the mainland counterpart to allow local or foreign companies to convert the yuan currency back into Hong Kong dollars or US dollars after they exit their direct investments in mainland companies. If the conversion is permitted, it would make for a huge boost in the yuan repatriation process," Lee said.

In the first eight months of 2011, total trade deal settlement in yuan conducted through Hong Kong exceeded 1,100 billion yuan, 15 times higher than for the same period last year. The total accounted for more than 80 percent of yuan trade settlement in the entire country.

Yuan bonds issued in Hong Kong during the same period amounted to 70 billion, doubling last year's total. The latest figures on yuan deposits in Hong Kong show the total has climbed to 610 billion yuan, eight times higher than in early 2010.

oswald@chinadailyhk.com

China Daily

(HK Edition 10/13/2011 page2)