London will be the home of a new offshore trading market for the yuan, following talks between the UK and Chinese governments.
The agreement to develop the yuan market in London was finalised by the Chancellor, George Osborne, and Chinese vice-premier Wang Qishan at a meeting this week. Both parties said they welcomed the private sector’s interest in developing trading in the yuan, which is being gradually liberalised.
Osborne said the UK was an “attractive investment opportunity for Chinese investors and a gateway for further investment in Europe”.
The progress of the market will be monitored, while discussions will take place on how to support its growth and deal with any potential financial stability risks in the future.
The two parties said: “This dialogue will be supported by a joint collaboration project involving the private sector on the development of RMB-denominated financial products and services in London, including analysis of sources of demand and supply and potential areas for regulatory cooperation.”
London is the largest foreign-exchange trading area in the world and the capital is now trying to secure a slice of the offshore trade in yuan, which is sometimes referred to as renminbi.
China aims to turn the yuan into a hard currency that can be used in cross-border investment and trade. Increasing the number of offshore yuan hubs in cities such as London could move it closer to its goal.
People’s Bank of China governor Zhou Xiaochuan said making the yuan fully convertible was likely to be a gradual process and that there is no clear timetable for the project.
The meeting between Chinese and British officials covered a number of business, trade and economic issues, while it also boosted cooperation in the financial sector, investment and trade.
Both countries are keen to reduce barriers to trading across the world and have targeted increasing bilateral trade to $100bn (£62bn) by 2015, said Osborne.
The UK will ask the European Union to give China full market economy status before 2016, said the Chancellor. This would give Beijing more protection from trade penalties and make it more difficult for the EU to add special tariffs to cheap Chinese imports.
Chinese Premier Wen Jiabao visisted the UK in June and British companies agreed £1.4bn of trade deals, however France and Germany have generally beat the UK to contracts with China.