08/18/2011, 00.00
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Hong Kong as the yuan’s gateway to the world

Deputy Prime Minister Li Keqiang visits the city, where he announces a number of measures to enhance the former British crown colony’s role as a gateway for the internationalisation of the yuan. However, the plan is not entirely transparent; for instance, it is unclear how much freedom Beijing will leave to Hong Kong.
Hong Kong (AsiaNews) – China’s Deputy Prime Minister Li Keqiang, who is visiting Hong Kong, yesterday announced more than 30 measures to strengthen the city's role in the internationalisation of the yuan and make its stock exchange a crucial hub for China’s economy. However, many elements remain unclear, first among them, the real degree of freedom Beijing plans to leave to Hong Kong.

The measures were announced last night at a dinner to honour Li’s visit. Major investors and members of Hong Kong’s Legislative Council (LegCo) were present (but pro-democracy lawmaker Leung Kwok-hung was kept out).

Mainland China’s representative used the occasion to praise Hong Kong’s Chief Executive Donald Tsang Yem-kuen, who had been criticised a few weeks ago by members of China’s state council (cabinet).

For Li Keqiang, two-way investment and trade between HK and mainland must be encouraged. Equally, the city's role in internationalisation of the yuan must be strengthened.

A scheme allowing companies to settle trades in yuan, currently limited to 20 provinces, is being expanded nationwide.

Hong Kong also plans to team up with mainland exchanges. In fact, Hong Kong Exchanges & Clearing Ltd issued a statement saying it was in talks with China’s two stock exchanges in Shanghai and Shenzhen.

China will start an exchange-traded fund linked to Hong Kong equities and boost quotas from qualified companies to invest in its own share market. Mainlanders will thus be able to invest in Hong Kong (but only in yuan).

One of the new measures involves a 20 billion yuan (US$ 3 billion) quota for Hong Kong companies to invest in securities on the mainland via a yuan-denominated Qualified Foreign Institutional Investors (QFII) scheme.

This could help achieve a better return for the 554 billion in yuan now sitting as low-yielding deposits in banks in Hong Kong.

Financial operators welcomed the measures, especially since Hang Seng Index dropped or 12 per cent in the past few weeks.
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