Luxembourg lining up for yuan quota

Officials from the nation, backed by largest pool of the Chinese currency deposited in Europe, will lobby Beijing for acceptance into RQFII scheme

PUBLISHED : Tuesday, 11 February, 2014, 11:05am
UPDATED : Wednesday, 12 February, 2014, 12:37am

Luxembourg is lobbying Beijing for equal treatment with London, which was granted an investment quota last year allowing investors based there to invest their offshore yuan directly in the mainland's securities markets.

In an effort to capture a larger share of Europe's offshore yuan business, top officials from the grand duchy, including the minister of finance, plan to visit the mainland in May or June for talks with the financial authorities.

We are much stronger in deposits, loans, investment funds and bonds

Luxembourg, which holds the largest pool of yuan deposits in Europe, is seeking to be accepted into the renminbi qualified foreign institutional investor scheme.

The scheme grants selected offshore yuan holders a quota to invest in the mainland's stock and bond markets.

"We are hoping, if not before, at least at that stage, to get some good news," said Nicolas Mackel, the chief executive of Luxembourg for Finance, a government-backed agency tasked with promoting and developing the country's finance industry.

"We are very confident the Chinese will look at the second batch of jurisdictions that they would offer RQFII status to and Luxembourg would be among them."

Competition among would-be offshore yuan centres has been intensifying, and acceptance into the RQFII scheme has been a key target for each of them, as the two-year-old programme is the only channel through which offshore yuan can be invested directly in the onshore securities markets.

Foreign investors have also been able to invest in mainland stocks, stock futures and warrants through the qualified foreign institutional investor scheme since 2002, but the QFII quota is denominated in US dollars and usually takes longer to be approved.

London was the first offshore yuan centre after Hong Kong to be accepted into the RQFII scheme. It was granted an 80 billion yuan (HK$102.3 billion) quota when British finance minister George Osborne paid a visit to Beijing in October last year.

A week later, Singapore received a 50 billion yuan quota during a visit by Vice-Premier Zhang Gaoli to the city state.

London has an unrivalled position in yuan trading given that it is the world's largest centre for foreign exchange trading.

But in terms of dim sum bond listings and the distribution of yuan-denominated investment funds, Luxembourg compared well with London, Mackel said.

Bank of China, China Construction Bank and Industrial and Commercial Bank of China have set up their European headquarters in Luxembourg City, the capital of the tiny country nestled between France and Germany.

"Every city has its own field. We are much stronger in deposits, loans, investment funds and bonds. London is stronger in foreign exchange and derivatives," Mackel said.

"Luxembourg plays a major role, even if London has a better communication strategy than Luxembourg.

"We are a better and more important place [in the yuan business]."