Securities lawyers welcome Osborne's bid to make London an offshore leader for Chinese currency products

Finance partners have welcomed plans by the UK Government to help strengthen London's position as a leading financial centre by turning it into an offshore trading hub for China's renminbi (RMB) currency.

Chancellor of the Exchequer George Osborne signed a deal on Monday (16 January) in Hong Kong setting out plans to make London a trading centre for the currency, which is becoming increasingly important as China's economic power continues to grow.

Currently, Hong Kong is the main offshore centre permitted to trade and exchange the RMB; however, the agreement between Osborne and Norman Chan, chief executive of the Hong Kong Monetary Authority, would see the UK and Hong Kong looking at opening this up to London.

A forum will now be set up between Hong Kong and the UK assessing clearing and settlement systems, market liquidity and the development of new RMB-denominated products that would aid the growth of the currency.

If a deal proceeds, it will help cement London's position as a world leader for foreign exchange and financial services more generally, after several years in which its position has weakened. In addition to opening up greater trade connections between the UK and China, the deal could also lead to an increase in capital markets work in the UK, with London able to attract issuers planning to use the currency.

Herbert Smith Hong Kong finance partner Alexander Aitken said: "From London's perspective this is an important step in maintaining the City's position as a leading centre for financial products and will further cement its role as the leading market for foreign exchange in the world."

Freshfields Bruckhaus Deringer global finance head Alan Newton said: "There is an increasing appetite to issue RMB bonds from an expanding number of European corporates that have growing businesses in China and which would be keen to issue directly in their home European market rather than go to Hong Kong to issue dim sum bonds.

"There is also a different investor base here compared to Hong Kong, which could well be keen to diversify out of the euro into the increasingly important renminbi."

News of the plans comes as growing numbers of non-Chinese companies have issued RMB bonds in recent months. Multinationals selling 'dim sum' debt include Unilever, Caterpillar, McDonalds, Volkswagen, Fonterra, BP, BSH, Air Liquide and Tesco.

Eversheds Asia managing partner Nick Seddon said: "The combination of London's dominance in the foreign exchange markets and Hong Kong's dominance in the dim sum bond market makes this a logical step."

Additional reporting by Rose Orlik.

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Timeline

2007 – First 'dim 
sum' bonds issued 
by Chinese banks in Hong Kong

July 2010 – Renminbi (RMB) debt issues expanded to Chinese and foreign companies

April 2011 – Singapore bids to be first overseas RMB hub

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Further reaction

Orrick Herrington & Sutcliffe Asia managing Michelle Taylor: "The RMB bond market has tremendous potential for growth. More people are investing in renminbi as a currency and they are increasingly looking for RMB investment products with higher returns. At the moment, Hong Kong has a deep pool of RMB deposits and issuers are having no difficulty raising funds in the dim sum market at very favourable rates. As the pool of RMB savings deepens in London and other markets, issuers will be drawn to those markets. While Hong Kong will continue to be an important market in the shorter-term, as deposits outside Hong Kong grow and the variety of RMB denominated debt products increases, London and other markets will become very attractive to issuers and investors alike."

Pinsent Masons China corporate group head Jonathan Reardon: " The deal announced this week aimed at positioning London as a leading offshore trading centre for the renminbi after Hong Kong is potentially very exciting news for London as a banking and financial centre. The announcement comes as part of the increased and closer high level dialogue that has been taking place between the UK and China over the last year and the increase in trade and investment between the countries.

"The move and choice of London is not surprising given London's dominance with over 30% of the World currency trading. British banks, notably HSBC and Standard Chartered, have also been leading the way in Hong Kong in the development of the market for renminbi denominated bonds issued in Hong Kong ( so called dim sum bonds ) which has grown rapidly since the first issue of such bonds in Summer 2010 by McDonalds . London will see itself as well placed to develop these and other renminbi denominated financial products. It will also be interesting to see if this helps stimulate a significant increase in the numbers of Chinese banks setting up in London and the likely increase in trade and investment that may flow from that."

Slaughter and May Beijing head Lisa Chung: "It will be key to get the infrastructure and platform right for this to succeed. It is now probably too early to say to what extent this will have any impact on the London or Hong Kong market. At this stage, I do not expect that it will have a profound effect on the deal flow in the short term in Hong Kong or London. In any event, I think everyone is keen for the offshore RMB market to grow and the PRC Central Government has been supportive of that."