Hong Kong banks may extend yuan loans to firms in Shenzhen's Qianhai zone

Firms in Shenzhen's Qianhai development zone will be allowed to borrow directly from Hong Kong banks in yuan, the People's Bank of China branch in the mainland city said yesterday.

The announcement, following months of planning and speculation, was taken as evidence of a fresh effort by authorities to energise cross-border yuan lending. It will boost Hong Kong's offshore yuan business and enable much of the yuan that has accumulated offshore to flow back to the mainland.

The Hong Kong Monetary Authority said the measure would promote the development of Qianhai as a test bed for yuan convertibility on the capital account and cross-border lending. It would also give Hong Kong banks more opportunities to expand yuan currency lending.

Renminbi deposits in Hong Kong increased 1.7 per cent to 554.8 billion yuan (HK$681.5 billion) in October, the authority said this month. Hong Kong dollar deposits rose 1.5 per cent.

The interest rates and tenure of loans taken by Qianhai companies from Hong Kong banks should be determined by the parties involved, the PBOC said.

Hong Kong would play a key role in the mainland's financial reforms and further integration with Shenzhen, the HKMA said.