China should expand measures to help Hong Kong grow as an off-shore yuan center, which will help increase the use of the Chinese currency, according to JPMorgan Chase & Co.
The Chinese government should let some mainland investors take part in the yuan market in Hong Kong, Fang Fang (方方), JPMorgan’s head of China investment banking, said in an interview. Fang, who is also a delegate to the Chinese People’s Political Consultative Conference, made the proposal to the government.
Chinese Premier Wen Jiabao (溫家寶) is encouraging greater use of the yuan for international trade and investment to reduce reliance on US dollars as the US Federal Reserve prints money to support the US economy.
As part of the country’s new Five-Year Plan that runs through 2015, China will help develop Hong Kong as an off-shore yuan center, the National Development and Reform Commission said yesterday, without giving details.
“China should push for a more organized approach to help offshore entities to raise funding in yuan” and allow for companies to then direct the money back into the country for investment, Fang said.
The government should also “expand yuan settlement to boost the use of yuan in and out of China by foreign companies,” he said.
Hong Kong is the only territory in China in which investors can buy Chinese corporate debt without a license, and both the Hong Kong dollar and the yuan can be converted in the territory’s interbank market.
Sales of yuan-denominated debt in the city, known as “dim sum bonds,” totaled 13.3 billion yuan (US$2 billion) in the first two months of the year compared with zero in the same period of last year. The amount of local-currency debt issued in Shanghai rose 13 percent to 267.5 billion yuan.
The rise of Hong Kong as an offshore yuan center will not challenge Shanghai’s status as a financial center, Fang said.
To become a successful off-shore yuan center, Hong Kong needs to have a big enough currency pool in yuan, attractive investment products as well as a well-facilitated transaction and conversion mechanism, Fang said.
The Chinese government plans to support Hong Kong as a global transportation and finance hub, Xu Xianping (徐憲平), a vice chairman of the National Development and Reform Commission, said at a press conference yesterday.
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