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Shanghai Lures Guangdong Development as Yuan Peg Ends

Guangdong Development Bank Co. said it moved currency and bond traders to Shanghai from its headquarters in Guangzhou as an end to the yuan’s peg against the dollar enhances the city’s role as a financial center.

The lender, part-owned by Citigroup Inc., will at least double the headcount of its markets team by the end of next year from 24 now, said Tang Huang, general manager at the financial markets department. Bank of Nanjing Co. is also expanding in the city, according to Fang Xinghai, director general of Shanghai’s financial services office.

“Shanghai is the foreign-exchange and bond-trading center of the whole nation,” said Tang in a July 26 interview in Shanghai. “Our clients’ demand for products to control exchange-rate risks will rise substantially as the authorities permit more flexibility in the yuan.”

Calls today to the press office of Bank of Nanjing weren’t answered. The Nanjing-based bank is partly owned by BNP Paribas SA.

China’s central bank ended the yuan’s two-year dollar peg on June 19 after holding the currency stable during the global financial crisis to aid exporters. Shanghai, which aims to become an international finance center by 2020, is home to China’s currency and bond trading platform, the China Foreign Exchange Trade System, also known as CFETS.

Unpegging Yuan

Standard Chartered Plc of London said in April it may expand its Shanghai-based global markets team in China by 40 percent by 2012, as the nation opens its financial markets to attract foreign investors. Shanghai-based Bank of Communications Ltd., the nation’s fifth-largest lender, also said it plans to enlarge currency and fixed-income teams in the city.

“A lot of other banks have this plan,” Shanghai city’s Fang said in an interview in Hong Kong on July 8. “Unpegging the yuan will increase trading volume. It will also add new products to the market.”

The yuan’s 12-month non-deliverable forwards weakened 0.1 percent to 6.6894 per dollar as of 2:50 p.m. in Hong Kong, reflecting bets the currency will strengthen 1.3 percent from the spot rate of 6.7797, according to data compiled by Bloomberg. The currency has climbed 0.7 percent since the central bank’s shift from a fixed exchange rate on June 19.

Offshore Trading

Yuan spot trading started in Hong Kong’s interbank market on July 21, two days after the People’s Bank of China and the Hong Kong Monetary Authority signed an agreement to lift limits on companies buying or selling yuan in the city, according to Gerrard Katz, head of foreign-exchange trading at Standard Chartered. Volumes are “very tiny” because of position limits introduced to prevent speculation, he said.

“China’s onshore foreign-exchange market will play a key role in the price setting of the yuan because the offshore market can’t compare with the onshore in either depth or volume,” said Guangdong Development Bank’s Tang.

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