- Hong Kong, UK agreement could turn London into off-shore yuan trade center
- Positions London to play important role in lifting yuan as a big global currency
George Osborne will sign a deal on Monday with Hong Kong aimed at helping turn the City into an offshore trading centre for the renminbi in what the chancellor sees as a vote of confidence in London.
Osborne believes the talks are proof that China sees London as a significant financial centre and gateway to the European single market, in spite of Britain's isolation at a Brussels summit last month.
The chancellor will agree with Norman Chan, chief executive of the Hong Kong Monetary Authority, technical measures to help London play an important role in increasing the renminbi's standing as a big global currency.
The two men will set up a forum investigating synergies between the UK and Hong Kong, including looking at clearing and settlement systems, market liquidity and development of new renminbi-denominated products.
The deal will give weight to attempts by Osborne to ensure that new European Union regulations do not stifle the City. He argues that London is a large asset not just for Britain but as a financial center serving the whole of the European Union.
China has given its backing to London's ambitions to become a significant offshore renminbi trading centre; Hong Kong is the world's biggest offshore centre for the Chinese currency, acting as a gateway for the onshore market in mainland China.
The Hong Kong Monetary Authority recently announced that it was to extend the operating hours of its renminbi payments system by five hours so as to facilitate better offshore trading with London, extending the window through which financial institutions in London can settle offshore renminbi payments.
A Treasury official said: "The UK is the only European country to hold a dialogue at such a senior level with the Chinese government, and last summer's discussions followed on from an increase in UK goods exports to China in 2010 by 40 percent to £7.6bn."
The Treasury says London is the logical place for the market to expand to help deepen the renminbi market outside China and Hong Kong.
British financial services companies are market leaders in what is a rapidly expanding field. For example, UK bank Standard Chartered launched the first ever renminbi corporate bond for McDonald's in 2010.
Total Chinese trade settled in renminbi has increased from 0.7 percent in the first half of 2010 to more than 9 percent in the first half of 2011. Renminbi deposits in Hong Kong have increased from Rmb64bn in January 2010 to Rmb627bn in November 2011.
Bank of China said it "strongly supports" London to be the next offshore renminbi trading centre, after Hong Kong, while Peter Sands, Standard Chartered's chief executive, said London had "a unique opportunity" that should not be missed.
Stuart Gulliver, HSBC's chief executive, said: "Successful cooperation will support British businesses, as they look east to the opportunities in Asia while supporting Asian businesses looking west to Britain as a natural home for trade and investment."