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CNH Tracker-China's Guangdong FTZ to aid yuan internationalisation
March 12, 2015 / 7:42 AM / 3 years ago

CNH Tracker-China's Guangdong FTZ to aid yuan internationalisation

HONG KONG, March 12 (Reuters) - China is opening a free trade zone (FTZ) in Guangdong next week, part of its wider financial reforms that include moving to a fully convertible yuan currency and capital account liberalisation.

The high-profile Shanghai FTZ debuted in 2013, and has been expanded in size and had some restrictions relaxed to attract companies and investors.

In the Shanghai FTZ, China is allowing schemes such as cross-border lending and cash pooling, which have helped facilitate yuan circulation and usage in the offshore market, and get more foreign companies to work in the Chinese currency.

In December, China said it would open three more FTZs - in Guangdong, Fujian and Tianjin - and these would duplicate the Shanghai model.

The Guangdong FTZ, covering Nansha area of Guangzhou, Qianhai area of Shenzhen and Hengqin area of Zhuhai, offers proximity to Hong Kong, the biggest offshore yuan hub and a pioneer to promote yuan internationalisation. It will be launched on Wednesday.

Hong Kong and Guangdong “agreed to capitalise on the opportunity arising from the Shenzhen-Hong Kong Stock Connect to further deepen the co-operation of the securities markets in the coming year,” Carrie Lam, Hong Kong’s chief secretary for administration said on Wednesday.

Both sides would seek support to extend the cross-border yuan loan policies applied in Qianhai to cover Nansha and Hengqin, Lam said.

China kicked off its cross-border yuan loan scheme in Qianhai in 2013 with Hong Kong-based banks signing loans of 2 billion yuan ($321.5 million) to mainland Chinese firms for 26 projects.

Government-owned Shenzhen Qianhai Financial Holdings last week completed a 500 million yuan dual-tranche loan, marking the first syndicated financing for a Qianhai-incorporated company, sources told Basis Point.

However, as the funding cost in Hong Kong’s yuan market has increased so much in recent few months, some market participants doubt whether mainland China companies have the incentive to borrow from the offshore market.

Cities such as Shandong province port Qingdao are reported to have stepped up efforts to be included in a third batch of FTZs, highlighting their edges in different industries.

Analysts say China is on track to achieving its commitment to capital account liberalisation and more relaxation of controls is expected this year.

“China is likely to open more industries to foreign investment. The 2015 negative list, which is expected to be unveiled in the first half, will be shortened further to fewer than 100, down from 139 in the 2014 list,” said Xie Dongming, an analyst at OCBC in Singapore.

WEEK IN REVIEW:

* Singapore Exchange said on Tuesday it will add new Asian currency futures contracts on the Taiwanese dollar (TWD/USD) and Renminbi crosses (SGD/CNH, CNY/SGD, EUR/CNH) in the third quarter of 2015.

* South Korean tech giant Samsung Electronics said on Thursday it will start buying or selling the Chinese yuan for the won from the Seoul market on March 16.

* Germany’s KfW Bankengruppe completed its sale of a 1.25 billion yuan three-year dim sum bond at 4.25 percent, according to a term sheet seen by Reuters. Central banks and official institutions took the lion’s share of the senior unsecured note, accounting for 44 percent of the offering.

* Standard Chartered’s Renminbi Globalisation Index rose to 2,137 in January, up 2.3 percent from the previous month, the bank said on Tuesday. It was the fastest gain in eight months.

CHART OF THE WEEK:

Standard Chartered Renminbi Globalisation Index: link.reuters.com/zun34w

RECENT STORIES: EXCLUSIVE-China’s international payments system ready, could launch by end-2015 CNH Tracker-Foreign issuers develop a bigger appetite for dim sum bonds

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$1 = 6.2629 Chinese yuan Editing by Richard Borsuk

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