Meeting hailed as harbinger of stronger ties

Britain to issue renminbi bond; IcBC to open London branch

The sixth China-UK Economic and Financial Dialogue will foster sustained growth of financial services and strengthen ties, officials and business leaders from the two countries say.

This year's meeting, on Sept 12, underlined how strong financial collaboration between the two countries has become, says Zhou Xiaoming, minister counselor of the Chinese embassy in London.

Britain's plan to issue the first sovereign renminbi bond outside China is impressive, Zhou says.

British Chancellor of the Exchequer George Osborne announced his country's intention to become the first Western country to issue a renminbi bond, at the meeting with Chinese Vice-Premier Ma Kai.

The renminbi bond will be used to add to Britain's foreign currency reserves, which hitherto did not contain Chinese currency, Osborne says.

"The bond is intended to be a one-off issuance, with the benefit of contributing liquidity to the small but fast-growing renminbi offshore market and attracting other market players in both the private and official sectors."

Mark Boleat, policy chairman at the City of London Corporation, is also enthusiastic about the outcome of the talks.

"This move is not just a symbolic move but will help lay the groundwork for the yuan's future as a major global currency, not just for trade and investment but also for sovereign reserves.

"It reflects market demand and further demonstrates the commitment of the UK government to support yuan internationalization and London's position as a leading offshore yuan center."

The bond is expected to go on sale within a few weeks or months, and proceeds will be used to bolster UK foreign currency reserves.

More remains to be done to develop the offshore renminbi bond market, which in turn will encourage wider circulation of the yuan outside the Chinese mainland, in tandem with Chinese financial market liberalization, Boleat says.

Alastair Wilson, managing director of global sovereign risk at Moody's Investor Service says:"The UK government's planned issuance of a yuan bond supports Chinese authorities' stated intention of continuing the gradual internationalization of the yuan.

"Although the bond does not have a direct impact on China's sovereign credit profile, the increasing internationalization of the yuan is a reflection of China's economic strength, financial robustness and strong external performance, all of which underpin the AA3 sovereign rating."

Other major achievements announced during meeting include China's largest commercial bank, the Industrial and Commercial Bank of China, being granted a license to open a branch in London. ICBC will be the first Chinese mainland bank to open a branch in Britain since 1949.

Zhou says the Prudential Regulation Authority's decision to grant ICBC the license comes as recent rule changes take effect allowing foreign-owned firms that meet certain requirements to operate as branches in the UK.

The licence will enable ICBC to grow its business and improve its UK operations, Zhou says.

Boleat says: "This change is a welcome move in keeping London and the UK competitive, as the City of London thrives on its ability to be open to all legitimate international financial institutions.

"We hope to see more leading global financial institutions from key markets including but not exclusively from China expand their business in the city. With the development of emerging markets such as China, it seems fitting that their firms begin to grow their presence overseas, and in future we expect more top firms like ICBC to play a role in the UK, commensurate with their global size."

Reciprocal measures were also agreed on to open up financial markets, with Lloyds of London to open a Beijing branch soon. Analysts say such moves will help further business and trade between China and Britain.

Last month, the London Stock Exchange Group signed agreements with China Construction Bank, Agricultural Bank of China and Bank of China. They cover areas for further cooperation between the LSE Group and the companies in building closer financial links with China and London.

Alexander Justham, CEO of London Stock Exchange plc, says: "London is the world's most international financial market and a natural partner to China in its ambitious global development."

Justham says he is pleased to see the exciting progress that has been achieved through the dialogue, particularly the strengthening commitment both partners have made to boost UK investment in China and reciprocal development of renminbi-denominated investment products in London.

"There is a strong sense of momentum to this burgeoning partnership between our two economies, as demonstrated by the recent renminbi bond issuance and the planned establishment of an ICBC branch in London," Justham says.

"We will continue to do all we can to accelerate the writing of this important new chapter in the story of global finance."

Zhou says: "In the financial sector, the UK obviously leads other European countries."

Apart from the financial collaboration, Zhou says, collaboration in infrastructure in new areas such as urbanization and energy is also progressing well.

The two sides are positive about increasing collaboration in areas such as nuclear energy and high-speed rail projects, he says.

Ma says that when he met British Prime Minister David Cameron on Sept 12, he told him China was keen to enhance collaboration with Britain in nuclear energy, high-speed rail, finance and technology, and give more impetus to the comprehensive strategic partnership between the two countries.

Cameron says he is looking forward to improving collaboration on some large infrastructure projects with China.

From 2011 to 2015, Britain is expected to need capital worth about $325 billion for the infrastructure sector.

Executives of China Investment Corp, the sovereign wealth fund, have repeatedly said that the company will seek infrastructure deals in Britain. It bought a 10 percent stake in Heathrow Airport in October, 2012. This was soon after the fund bought a stake in Thames Water the same year.

Britain is one of Europe's largest investors in China, and among the largest destinations in Europe for China's outward investment.

Britain has also announced several measures to make it easier for Chinese tourists to visit the country, including streamlining the visa application process and making it easier for British airports to be used as hubs for international travel.

Carolynn Look contributed to this story.

zhangchunyan@chinadaily.com.cn

(China Daily European Weekly 09/19/2014 page22)