China has agreed with the U.K. to allow investors around the globe to trade directly in Chinese shares and bonds through London’s banks and financial institutions.
Chancellor George Osborne has announced moves aimed at making London the main centre for Chinese financial business overseas.
The deal is the first of its kind in the western world and will allow as much as 80 billion yuan or renminbi ($13 billion) to be invested in Chinese securities via approved London institutions.
Under an £8bn pilot scheme, London-based investors will be able to apply for a licence to use the Chinese currency to invest directly in Chinese shares and bonds.
Previously, foreigners could only make these kinds of investments through Hong Kong, where a similar arrangement allows investors to buy up to 270 billion yuan ($44 billion) in securities in mainland China.
The agreement should shore up London’s dominant role in the global currency market.
The city is already the most active centre for yuan trading outside China and Hong Kong, and accounts for 40 per cent of total foreign exchange trade, with $5.3tn worth traded on an average day.
Philip Shaw, a London-based economist from Investec, said the deal was a win-win for both sides.
“China wants a greater global role, not just in terms of manufacturing, but also in financials,” he said. “And if it wants to expand internationally, London is one obvious place to be.”
China has been pushing to internationalize its currency, and the yuan is being used to conduct a growing number of transactions on world markets.
The China-U.K. deal will allow Chinese banks to open branches in London, making it easier for them to build their presence and allow China’s huge banks to conduct business in London with companies and financial institutions.
“There might be concerns that the Chinese banks, which are mainly state-owned, are not as well regulated,” said Michael Moore, a finance professor at the Warwick School of Business. “But they will be trading in renminbi and given the importance of the market, this is a compromise worth taking.”
Mr Osborne said “Today we agreed the next big step in making London – already the global centre for finance – a major global centre for trading and now investing the Chinese currency, too.”
He said the move would mean more trade, investment, business and jobs for Britain.
