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Christine Chan

Local and Guangdong banking regulators will discuss ways to clear offshore currency stockpiles

A pilot scheme to allow mainlanders to use yuan credit cards to pay for purchases in Hong Kong is likely to top the agenda of a meeting between Hong Kong and Guangdong banking regulators this month.

The proposed use of yuan credit cards in Hong Kong figures highly in a major study by Guangdong's banking regulator on ways to clear and repatriate the huge amount of yuan sitting offshore, according to the a senior financial regulatory official from the province.

The lack of yuan convertibility provides major hurdles for cross-border payments and interbank settlement.

'We want to see the use of mainland bank-issued yuan credit cards in Hong Kong and Macau as soon as possible. There are no technical hurdles for the move,' the official said, without divulging the timing of such a plan.

Joseph Yam Chi-kwong, chief executive of the Hong Kong Monetary Authority (HKMA),  is due to visit Guangdong as part of a delegation from the Hong Kong Association of Banks in about two weeks.

'The HKMA has been in discussions with its mainland counterpart on the proposal to develop yuan business in Hong Kong. Discussions are still continuing, so it's premature to comment at this stage,' the authority said yesterday.

The plan is poised to provide greater convenience to mainland travellers spending in Hong Kong. At present, they can make payment in cash (the yuan is largely accepted by local retailers) or in foreign currency bank cards to pay for retail purchases and hotel bills.

It is also timed with the removal of the ban on individual mainland travellers to Hong Kong and with the accompanying liberalisation on how much cash they can take with them offshore, which was recently increased to US$5,000 from $2,000.

'Issues that need to be discussed for the use of yuan credit cards in Hong Kong include the setting up of an offshore clearing bank for the settlement of yuan transactions. Allowing the authorised use of credit cards to make payments will help the orderly channelling of yuan back into the official banking system,' the official said.

Estimates put the amount of yuan in Hong Kong at HK$40 billion to $65 billion, with forecasts that it could reach almost $100 billion by the end of 2005 with the growing use of yuan in Hong Kong by mainlanders.

The yuan stockpile in Hong Kong is increasingly worrying mainland regulators.

However, one sticking point is how the payment can be made once the proposed yuan credit cards are swiped in Hong Kong, given the absence of a yuan offshore clearing centre.

At present, banks accepting yuan in cash have no official channels to repatriate it to China. They tend to exchange the surplus funds with local money changers.

But on using credit cards, HSBC chief Greater China economist George Leung Siu-kei  said: 'The lack of a yuan offshore clearing centre has meant retailers may have to accept Hong Kong dollars in payment via a conversion.'

A card company executive said the card payment system in Hong Kong would need upgrading to accept mainland-issued credit cards for authorisation.



HK may allow yuan credit cards