Reuters/London
China and Britain voiced support yesterday for London to become an offshore trading centre for the yuan, a move that boosts the city’s position as a major currency and commodities trading hub. London would join other centres, including Singapore and Taipei, which are vying for a share of the growing offshore yuan business. But all are expected to have to play second fiddle to Hong Kong as Chinese authorities push on with a series of initiatives to internationalise the currency. “We agreed to collaborate on the development of renminbi-denominated financial products and services in London, and our regulators stand ready to support this growing market,” Britain’s finance minister George Osborne said in a joint news conference with visiting Vice Premier Wang Qishan. Official backing for yuan trading in London is no guarantee that a big market will spring up, as it will depend on private demand. London does have strong market infrastructure and is the premier foreign-exchange trading centre. But Hong Kong has a huge first-mover advantage in offshore yuan dealing, not least because many Chinese trading firms that settle exports and imports in the currency have offices there. Analysts are sceptical London can usurp Hong Kong’s pole position as an offshore yuan centre, because much of Europe’s trade with China is scattered throughout the region and Hong Kong is still the main gateway for companies seeking to do business with China. “China’s push to make London an offshore yuan centre is an exciting development as it is an important financial centre and also a hub for metals trading, a key focus area for China,” said Linan Liu, a senior strategist at Deutsche Bank in Hong Kong. “Still, London’s role along with Singapore and Taiwan will be largely complementary to Hong Kong as this is where the infrastructure and the liquidity exists,” she added. The gradual relaxation on the use of yuan in international transactions has led to 7% of Chinese trade now being settled in yuan in the March quarter, up from around 1% a year ago, according to data from Hong Kong and China central banks. The pool of deposits denominated in yuan in Hong Kong has exploded in the past year, and has hit nearly 10% of total deposits by end July from 1% last January, the data showed. The annual meeting of the two governments focussed on improving trade and investment links as well as on discussions about the situation of the global economy. Wang’s visit comes just three months after a trip to London by Chinese premier Wen Jiabao, in which he expressed anger at the way British Prime Minister David Cameron publicly criticised human rights violations in China.