More reforms called for Qianhai economic zone
Shenzhen special economic zone urged to lift financial and trade curbs to allow cross-border yuan lending between banks, customs integration
Qianhai, the special economic zone in Shenzhen intended as a test bed for China's yuan liberalisation and financial reforms, should step up efforts to unshackle financial and trade restrictions, with cross-border interbank yuan lending and customs integration the key areas in need of further reforms, say business leaders.
A stone's throw from Hong Kong, Qianhai should open up yuan lending between banks on both sides of the border, which would ease the offshore yuan liquidity crunch seen in Hong Kong following the shock devaluation of the currency, said John Kam Hou-yin, who heads the Shenzhen branch of the Bank of East Asia.
"Cross-border interbank lending is in great demand and of great urgency," Kam said at a government-business dialogue on Wednesday marking the 35th anniversary of the Shenzhen special economic zone.
The spread between onshore (CNY) and offshore yuan (CNH) jumped to almost the highest in a year after the People's Bank of China changed the yuan fixing mechanism leading to the devaluation.
The gap hit more than 1,000 basis points on Tuesday and fell about 700 on Wednesday. That fuelled cross-border arbitrage, draining yuan liquidity in Hong Kong as the CNH interbank offered rate rose to a record high.
"If Hong Kong, as the biggest offshore yuan centre, has no liquidity, neither will other places such as London or Singapore," Kam said. "Coupled with the declines in US$/CNY forwards that heighten further decline expectations, it is complicating the ultimate goal of bridging CNH and CNY to make yuan fully convertible."
In future, the fixing of offshore yuan could even be decided by a panel of market makers in Qianhai, he said.
Kam's proposal was broadly echoed by delegates at the seminar, where 30 firms made a raft of suggestions for the authorities over the special economic zone.
Du Peng, Qianhai's top official, said he would deliver the messages to the central bank.
Only companies are now allowed to transfer internal onshore and offshore yuan through a carefully managed two-way scheme while banks can do cross-border lending to firms.
"We are on the verge of releasing an action plan on financial and trade innovations," Du said.
Cross-border trade was another hotly discussed topic at the seminar, with both state and private corporate heavyweights voicing for more integration in customs systems and reduction in inspections.
"Goods listed in the Closer Economic Partnership Arrangement should be exempted from customs inspections," said Lei Gong, a vice-general manager of China Merchants Shekou Industrial Zone. "Mutual recognition in the inspection of goods by Hong Kong and Qianhai customs would vastly cut red tape and stimulate trade flows. We also need fast-track clearance for e-commerce goods."
Qianhai aims to lead the charge in building a cross-border e-commerce centre, which has prompted China Merchants and Chow Tai Fook Enterprises to set up shopping malls there.
Chow Tai Fook is racing to open a 7,000 sq metre mall by year-end specialising in items Chinese mainly import from Hong Kong, such as infant formula and diapers.
Joseph Ma, Standard Chartered South China chief executive, voiced concerns over Qianhai's uniqueness as other free-trade zones mushroom across the mainland. "How can Qianhai differ? This is the most frequently raised question by our clients."
A tax holiday that cuts corporate and salary tax rates to 15 per cent, according to Ma and other delegates, is inadequate to spawn industrial and economic clusters.
"What we have now in Qianhai is innovation here and there," Ma said. "Without an institutional set-up that connects these dots, a lively financial and trade market cannot grow."
John Zhao Linghuan, the chief executive of private equity powerhouse Hony Capital, agreed: "What catch our eyes are business opportunities [rather] than mere tax reductions."
