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China to support London as offshore yuan centre
By Fiona Shaikh
LONDON (Reuters) - China will give its formal support for London to become an offshore trading centre for the yuan, a UK government official told Reuters on Thursday, a move that would boost 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. All, though, are expected to have to play second fiddle to Hong Kong as Chinese authorities push on with a serious of initiatives to internationalise the currency.
The British official said Chinese backing for the move would come later in the day in a joint statement in London by visiting Vice Premier Wang Qishan and British finance minister George Osborne after annual talks being held today.
"Last year, Britain and China said they would explore options to make London a renminbi trading centre in future," a British official said, using an alternate name for China's currency. "A statement saying they both back the idea is therefore a significant step forward," he added.
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 are settling 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 (CNH), 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 percent of Chinese trade now being settled in yuan in the March quarter, up from around 1 percent 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 percent of total deposits by end July from one percent last January, the data showed.
Osborne and Wang will present their joint statement at 1330 GMT after their talks conclude.
The British official said the talks would focus on macroeconomic issues, financial services, cooperation through the G20 and infrastructure.
The Chinese delegation will then conduct visits linked with infrastructure in and around London.
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.
(Reporting by Saikat Chatterjee, Fiona Shaikh and Alan Wheatley; Editing by Patrick Graham)
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