LEAD: H.K. to launch personal Chinese yuan banking services

Asian Economic News, Nov 24, 2003

HONG KONG, Nov. 18 Kyodo

(EDS: ADDING DETAILS)

Banks in Hong Kong will be allowed to run personal banking services in China's yuan currency from late this year or early next year, Chief Executive Tung Chee-hwa said Tuesday.

To further support the territory's economic recovery, the Chinese central government has permitted Hong Kong banks to take deposits, provide remittances and exchange, and offer credit cards in yuan, or known as the renminbi, for retail customers on a trial basis, Tung said.

All licensed banks in the former British colony will be allowed to take part and the new services will be implemented step-by-step around Jan. 1 next year, the Hong Kong leader said.

''This is a very meaningful first step for our banks to be involved in running the renminbi business and to consolidate our position as an international financial center,'' Tung told reporters.

It will be the first time that foreign banks can handle yuan-denominated business outside mainland China.

The Chinese currency is yet to be fully convertible.

The People's Bank of China, the country's central bank, will sign a memorandum of understanding on the yuan business cooperation with the Hong Kong Monetary Authority (HKMA), the territory's de facto central bank, in Beijing on Wednesday.

The People's Bank of China will provide clearing arrangements of the yuan-denominated transactions for the Hong Kong banks, Tung said.

According to HKMA chief executive Joseph Yam, the Chinese central bank will appoint a designated Hong Kong bank as the clearing bank, which will deposit the yuan funds with the Shenzhen sub-branch of the People's Bank of China.

''The arrangements for Hong Kong banks to conduct renminbi business will open a new channel for the flow of renminbi funds between Hong Kong and the mainland through the banking system,'' Yam, who is visiting Beijing, told reporters.

He said it is too early to tell whether Hong Kong will become an offshore yuan center as that has to depend on the relaxation of the renminbi in the capital account.

But by making use Hong Kong in yuan banking business in a limited way, it can indicate how the liberalization of the Chinese currency in future will look like, he added.

Yam stressed that Beijing has adopted a ''gradual'' approach in relaxing its controls over the yuan.

Meanwhile, Tung expects the new personal yuan banking services to bring greater economic benefits to Hong Kong as mainland tourists and businesspeople from mainland China will find it more convenient to use the Chinese currency in Hong Kong.

Under the scopes of yuan business allowed, Hong Kong banks may offer renminbi deposit-taking services to Hong Kong residents and determine the interest rates and terms of deposits, according to a government statement.

Yuan deposit account holders can convert the Chinese currency into Hong Kong dollars, and vice versa, up to amounts of 20,000 yuan (about US$2,420) per person per day.

Those individuals who do not have a yuan deposit account can exchange 6,000 yuan at most.

Banks can also provide the services to businesspeople engaged in retail sales, catering, accommodation and other services related to personal consumption for the exchange of their yuan receipts into Hong Kong dollars, the Hong Kong government said.

As for remittances, each yuan deposit account holder can remit up to 50,000 yuan per day.

The new arrangements will also allow mainland Chinese residents to use renminbi debit cards and credit cards for spending in Hong Kong, while Hong Kong banks can issue such cards to Hong Kong residents for use on the mainland.

But all the services do not involve investment and other capital account transactions, the government said.