Talks between the People’s Bank of China and the Hong Kong Monetary Authority to allow non- residents of the city to open yuan-denominated bank accounts are making progress, PBOC Deputy Governor Hu Xiaolian said.
The plan could be feasible “as long as it doesn’t involve the onshore yuan,” Hu told reporters after a briefing in Hong Kong today. There could be progress “in the foreseeable future,” she said, adding “a future that is not that far.”
Hong Kong’s biggest banks have been lobbying China to relax restrictions on the city’s yuan business as competition from London and Singapore intensifies. The halt in the yuan’s appreciation against the U.S. dollar this year has damped appetite among residents for assets denominated in the Chinese currency, with the city’s yuan deposits at the end of May dropping 35 billion yuan ($5.5 billion) from the end of last year to 554 billion yuan.
Hong Kong residents can open yuan accounts and buy as much as 20,000 yuan per day. The quota was raised from 6,000 yuan in November 2005. Non-residents haven’t been allowed to open savings accounts in the Chinese currency.
The central bank isn’t considering raising Hong Kong residents’ daily yuan conversion quota, Hu said at the briefing. “Judging from the statistics we have, Hong Kong residents have a long way to go to fully utilize the quota,” Hu said.
China may expand the Renminbi Qualified Foreign Institutional Investor program and relax rules covering investments, Yao Gang, vice chairman of the China Securities Regulatory Commission, said at the same briefing.
The program allows mainland financial companies to raise yuan-denominated funds outside China to invest in the domestic securities markets.
“Both Hong Kong and Chinese companies should be able to participate in the RQFII program as it expands,” Yao said. “Decisions on the investment ratio should gradually be driven by the market instead.”
Under current rules, only Hong Kong units of Chinese financial institutions can raise yuan in the city and invest in onshore capital markets. At least 80 percent of the funds must go into the interbank bond market with the rest in either equities or cash. Twenty-one companies started raising money for RQFII funds earlier this year after the program was introduced.
The original quota for RQFII was set at 20 billion yuan. In April, China raised the amount by 50 billion yuan to allow pilot institutions to issue yuan-denominated exchange-traded funds that invest in mainland A-shares and list them in Hong Kong.
China’s securities regulator yesterday approved the first two mainland-listed exchange-traded funds to track Hong Kong stock indexes. China Asset Management Co. and E Fund Management Co. won the mandate to start the ETFs, Yao said.
Hong Kong’s Securities and Futures Commission also authorized the listing of a yuan-denominated A-share ETF on the city’s stock exchange. The fund, part of the RQFII program, will track the performance of an A-share index, according to a statement issued by the two regulators on June 29.
Cross-border flows of money for investment in stocks and bonds are currently limited to funds awarded investment quotas by regulators.
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