George Osborne’s efforts to put London at the centre of the fast-growing renminbi trade progressed this week with the launch of direct trading between the British and Chinese currencies and a fresh push for UK investors to tap China’s markets.
The UK chancellor was hosting Li Keqiang, China’s premier, and Zhou Xiaochuan, central bank governor, at a forum to boost bilateral financial ties.
China is keen to expand its banks’ activities in the UK, while London – the biggest centre in the $5tn a day foreign exchange market – wants to cement its place as the main western hub for offshore renminbi business, as Beijing promotes international use of the currency and gradually opens its capital markets.
“The number of historic changes in our financial world are few,” said Mr Osborne,?comparing?the ren-minbi’s rise to the dollar's emergence as the global reserve currency after the first world war. He added: “Bluntly, I want the City to facilitate that change and be central to it.”
Mr Li said the UK should “seize on this momentum to consolidate its position as one of the most important offshore renminbi markets outside Asia”.
The start of direct trading between sterling and the renminbi – agreed during an earlier bilateral visit – echoes deals reached to make the renminbi directly convertible against the yen, Australian dollar and New Zealand dollar. The creation of a new currency pair tends to have limited effect at first, because liquidity is higher when each currency is traded against the dollar. But if it gains traction, it should eventually make foreign exchange transactions simpler and less costly.
HSBC said it had received approval from the People’s Bank of China to be a market maker for renminbi trading against the pound.
Mr Osborne also said the UK government’s export finance agency would now support businesses exporting to China by providing guarantees for transactions denominated in renminbi – with work on a first big transaction under way.
He said two UK-based asset managers – subsidiaries of HSBC and BlackRock – had won licences to make renminbi-denominat-ed investments in Chinese securities. China granted UK-based institutions a Rmb80bn (￡7.57bn) quota to invest in its onshore markets last October, but qualifying to use the scheme has proved a slow process. Mr Osborne also noted the appointment of China Construction Bank as the renminbi clearing bank in London – filling a gap in trading infrastructure.
He wants London to play a bigger part in China’s gradual opening of capital markets. He said London should seek links between stock exchanges, similar to those being built between Hong Kong and Shanghai, and explore ways for Chinese investors to access London’s capital markets.