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Shanghai aims to be yuan clearing center

By Wang Fei’er  (Global Times)

08:02, July 02, 2012

China's financial hub Shanghai has an ambition to establish the first cross-border yuan clearing system in the Chinese mainland, Vice Mayor Tu Guangshao, said at the Lujiazui Forum on Friday, reflecting the city's efforts to strengthen its position as a global financial center by promoting the internationalization of the yuan.

Tu also said that the city's request has recently received a positive response from the People's Bank of China (PBC), the country's central bank.

Shanghai will most likely receive approval from the financial authorities soon, because the city is home to the largest number of financial institutions in the Chinese mainland with 1,049 financial institutions, including 21 foreign banks, generating an increasing demand for cross-border yuan clearing and settlement, Frank Song, director of Hong Kong-based Center for China Financial Research, told the Global Times.

In cooperation with the China Foreign Exchange Trade System, established in Shanghai in April in 1994 to facilitate foreign exchange trading, the newly planned system will streamline clearing and settlement between the yuan and foreign currencies, Yin Jianfeng, deputy director of the financial research institute under the Chinese Academy of Social Sciences, told the Global Times Sunday.

Shanghai has also developed a non-cash payment network last year, including online and bankcard payment, which will greatly facilitate the city's planned yuan clearing system, Zhang Taowei, an associate professor at the School of Economics and Management of Tsinghua University, told the Global Times.

China UnionPay Co, the country's sole bankcard transaction firm, has recently pledged to push forward global coverage of bankcard services based in Shanghai.

The firm signed a cooperation agreement with Denmark-based Nets Holding A/S on June 23, a leading payment service provider in North Europe, for business expansion in the European market.

Established in November 2009 for the settlement and clearing of financial products, Shanghai Clearing House will also play an important role in cross-border yuan clearing and settlement, based on its long experience, said Xu Zhen, chairman of the board, also at the forum.

China has gradually eased controls over capital account, including increasing the quotas under the Qualified Foreign Institutional Investor (QFII) and Qualified Domestic Institutional Investor (QDII) schemes which allow foreign investment in the domestic financial market and vice versa.

The country is also making efforts to boost foreign trade and investment, and has pledged to energize the foreign currency-related derivatives. In this backdrop, it is the right time for China to launch its first cross-border yuan clearing system, Yin said.

The PBC has started direct trading between the Chinese yuan and the Japanese yen since June 1, and has also signed currency swap agreements in the first half of this year with six countries, including Australia and Malaysia, hitting a record high.

"All these moves are aimed at boosting the bilateral trade and investment, which will require an efficient currency clearing system," Zhang said.

The establishment of a clearing system in Shanghai won't dwarf Hong Kong as China's primary financial center by diluting the capital inflow from Hong Kong, Yin said, easing concerns over Shanghai's challenge to Hong Kong.

"The clearing system in Shanghai will only serve companies which have businesses in the mainland, the yuan's onshore market, in the same way as Hong Kong is the offshore market for the currency," noted Yin.

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