Agreement should pave way for more renminbi investment opportunities
September 04, 2010 | BY
clpstaff &clp articles &Restrictions lifted on renminbi clearing business
Investment channels for renminbi clearance need to be further opened up to develop the trade settlement between Hong Kong and China on renminbi investments, say counsel.
An agreement was signed recently between the Mainland's central bank, the People's Bank of China and Bank of China, Hong Kong's renminbi clearing bank, to further lift restrictions on the renminbi clearing business. Now, corporations and individuals will be able to go through the banks to make renminbi payments and transfers, limitations have been removed in the establishment of renminbi accounts, and more renminbi-denominated financial intermediary activities will be introduced.
Nigel Ward, a Beijing-based Norton Rose partner believed that the move will promote the liquidity of the Chinese currency in Hong Kong and makes the related inter-bank business feasible. “These developments will provide more opportunities for foreign investors to receive revenue in renminbi and take advantage of its widely-predicted potential for appreciation,” he said.
However, foreign investors need to be provided with more channels to make use of the renminbi. As Ward pointed out, a key issue affecting the motivation for overseas investors to accept the renminbi as a clearing currency and invest in its products “is whether and when such foreign-held renminbi will be allowed to
be used freely in the capital markets of China”.
His colleague, Shanghai-based of counsel Sun Hong added: “Hong Kong, as an offshore renminbi centre, may provide some investment opportunities, but the development of renminbi-related business would be limited if not ultimately channeled to the China market.”
Hong Kong-based May Brown JSM partner Sara Or noted that the agreement, because of the removed restrictions, offers great flexibility for corporations to use renminbi for investment purposes.
Banks are expected to develop more renminbi-denominated products that won't confuse investors.
“Given the investors' current sentiment and weariness regarding complex derivatives products, we would expect products which are simpler and more comprehensible to investors will have the highest growth potential at the initial stage,” said Or.
These potential products include renminbi-denominated life insurance and retail investment products, term deposits, bonds, and less complex structured products such as deposits linked to currencies, indices or other assets with a renminbi component.
This premium content is reserved for
China Law & Practice Subscribers.
A Premium Subscription Provides:
- A database of over 3,000 essential documents including key PRC legislation translated into English
- A choice of newsletters to alert you to changes affecting your business including sector specific updates
- Premium access to the mobile optimized site for timely analysis that guides you through China's ever-changing business environment
Already a subscriber? Log In Now