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China affirms Hong Kong's status as offshore yuan hub

Chinese yuan
Image caption China is trying promote the international use of its currency

China has announced plans to bolster Hong Kong's role as a leading off-shore trading hub for the yuan.

Vice Premier Li Keqiang said China would soon allow qualified foreign companies to buy up to 20bn yuan ($3.1bn; £1.9bn) worth of Chinese stocks and bonds from Hong Kong.

Sales of yuan bonds in the city will be also expanded, a move that is likely to bolster the currency's global role.

Mr Li did not say when the scheme would be launched.

"Issuing renminbi treasury bonds in Hong Kong will be a long term institutional arrangement of the central government," Mr Li said.

"We will gradually increase the size of insurance and work for the development and improvement of the renminbi bond market in Hong Kong," he added.

Opening up?

The plan allows foreign investors to invest in yuan-denominated stocks and bonds.

Analysts said the move was a step in the right direction as Beijing looks to open up its stock market to foreign investors.

"It is a good sign that they are opening up, because there was a lot of restriction," said Charles Chaw of China Consulting.

Mr Chaw added that Hong Kong would serve as a testbed for the plan and Beijing was likely to open up its stock markets to investors from other areas soon.

The move comes as China has been trying to promote the yuan as a global currency.

Analysts said, when implemented, the plan will bolster the yuan's role in the region.

"With more investment options available, firms and depositors in Hong Kong will use and hold yuan more willingly in the future, which is a positive move," said Chen Yong of Huatai United Securities in Shanghai.

Bond issue

China also sold more than $3bn worth of yuan-denominated government debt to investors in Hong Kong on Wednesday.

This was the biggest bond sale held in Hong Kong, which is a trading hub for the Chinese currency outside of the mainland.

The Ministry of Finance bond sale was split into a 15bn yuan for institutional and 5bn yuan for retail investors.

The sale showed strong demand for the Chinese currency, which is expected to gain in value against the US dollar.

Hong Kong Financial Secretary John Tsang said the result also showed strong faith in the Chinese economy.

"In the global financial turmoil, the overwhelming response from institutional investors indicates the sovereign bonds are of high quality and safe for investment," he said.

According to Thomson Reuters data, 88bn yuan worth of bonds had been issued at the end of last week from the start of the year, which is more than double the 42.6bn yuan issued in all of 2010.

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