Since Aug 1, non-Hong Kong residents can open yuan accounts with unlimited exchange amounts, marking another step in the internationalization of the yuan, with many seeing this as a new opportunity for the offshore yuan business development in the city.

Previously, although non-Hong Kong residents could not open yuan-denominated accounts, they could set up offshore companies and use them to conduct yuan business through commercial banks. The banks offered them services such as simple yuan deposit taking and financing, to more sophisticated yuan banking services like interest rate swaps and structured products. As many such yuan banking services existed before, the current new rules are merely extensions of existing services to non-Hong Kong residents, rather than a breakthrough in the yuan services' offerings. In other words, we should not view this as a substantial change in rules. It indeed makes existing yuan services more accessible to non-Hong Kong residents, and not just to those who can afford to do so through setting up paper companies.

Another issue for debate is the daily limit of 20,000 yuan exchange amount allowed for Hong Kong residents. As non-Hong Kong residents can exchange unlimited amounts of yuan daily, hence some people have questionedwhether the new rules are fair to Hong Kong residents. Also, others are questioning the yuan's convertibility as the yuan amount for exchange is unlimited for non-Hong Kong residents.

From an equal and fair point of view, different limits for non-Hong Kong residents and Hong Kong residents clearly can be seen as unequal treatment. But it must be remembered that non-Hong Kong residents were not allowed to open yuan accounts before Aug 1. So, using the same argument, we can also argue that non-Hong Kong residents were not treated equally before. In terms of policy, different treatments for different groups of people are not uncommon. Hence, the equality issue is not really a big thing to argue.

Even though on paper non-Hong Kong residents can exchange unlimited amounts of yuan daily, however in reality, the actual amount that non-Hong Kong residents can exchange will still be subject to the amount of yuan stocked in the Hong Kong market. Hence, no daily limit does not mean any change to the yuan convertibility.

From a macro point of view, the elimination of the daily limit on the yuan amount that non-Hong Kong residents can exchange can help the internationalization of the yuan. For non-Hong Kong residents, Hong Kong is the only international financial center that has a relatively large stock of yuan and the new rules make it more attractive to them to open yuan accounts in the city. These non-Hong Kong residents will also bring the yuan that has been flowing outside back to Hong Kong. Clearly it is in the best interest of Hong Kong because the inflow of the yuan will create a momentum for offshore yuan deposits, lifting Hong Kong one level higher in the development of the center for yuan business.

The author is Dean, School of Business, Hang Seng Management College. The views expressed here are entirely his own.

(HK Edition 08/09/2012 page2)