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Jan 31, 2012
China's top economic planning agency and the Shanghai government yesterday jointly announced plans to establish a huge, onshore market for the yuan within three years, directly competing with Hong Kong's own ambitions for offshore trading in the mainland currency
The National Development and Reform Commission (NDRC) and the Shanghai government said the plan to make Shanghai the global centre for yuan trading, clearing and pricing was part of broader efforts to make the city a financial centre like London or New York by 2020.
Shanghai's yuan-trading hub will aim to lift its annual non-forex financial market volume to 1,000 trillion yuan (HK$1,228 trillion) by 2015 from less than 400 trillion yuan in 2010, but Hong Kong-based analysts said the city's markets should comfortably meet the challenge from Shanghai.
Hong Kong economists were also sceptical, saying the plan paid lip service to bolster the investment community's confidence in Shanghai's long-term effort to transform itself into a global financial centre.
"The term `yuan trading centre' easily stokes fears in Hong Kong, but obviously Shanghai will focus on the onshore market while it doesn't necessarily mean Hong Kong's importance should be played down," said Gu Weiyong, chief investment officer at Ucon Investment Management.
"The plan looks extremely ambitious. It is a statement to established Western financial hubs like London and New York that China, including Hong Kong, will begin to compete with them in attracting capital thanks to the yuan's rising profile," Gu said.
The NDRC said it wanted the Shanghai market to set benchmark levels for the yuan prices and yuan lending rate worldwide, which bankers said showed that China wanted to tell the world that the mainland government would decide on the yuan's level - not offshore markets.
The NDRC also wants overseas companies to sell yuan-denominated shares on mainland stock markets. Although it has not yet submitted a timetable or other details, such a change would directly compete with the Hong Kong stock market which has been encouraging companies to issue yuan shares since September.
The NDRC-Shanghai statement, however, played down the challenge to Hong Kong, saying Shanghai's plan would "strengthen co-operation with Hong Kong" as the two cities were important to China and "complementary to each other."
"Hong Kong could beat Shanghai in terms of attracting international traders as Hong Kong has free flow of capital, a good legal system as well as many international banks and brokers," said Joseph Tong Tang, of Sun Hung Kai Financial.
"International investors cannot freely trade in the Shanghai market, while the mainland legal system is different from international practice. It's more likely that Shanghai will act as an onshore yuan trading centre for mainland firms and Hong Kong will be the offshore trading centre for yuan for international investors."
Earlier this month, Britain said it was teaming up with Hong Kong to secure London a top spot as an offshore trading centre for the yuan.
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