The mainland's broadening of the yuan settlement pilot programme - signalling further headway in the relaxation of currency controls - opens the way for Hong Kong's financial sector to introduce more yuan-orientated products. Standard Chartered Bank's economist, Kelvin Lau Kin-heng, says if Hong Kong banks were able to offer more yuan investment choices, it will raise the profile of the currency as an investment option. 'Hong Kong needs to realise we are in a special position,' Lau says. 'It is the only place outside the mainland that is able to offer yuan deposits and bonds and, until recently, yuan trade settlement. The yuan settlement pilot programme, launched last year and extended last month, has added momentum to China's efforts to internationalise its currency and opened the way for Hong Kong's finance sector to develop new yuan products.' Qu Hongbin, HSBC co-head of Asian Economics Research, says Hong Kong can offer experience and its financial expertise to develop yuan products that provide investors with access to mainland markets. 'Hong Kong's financial institutions are in a strong position to develop more capital and asset management services to promote the city's status as an offshore yuan financial centre and help to promote the internationalisation of [the] yuan,' Qu says. Analysts estimate that yuan-trade settlement could account for 40-50 per cent of mainland foreign trade, or nearly US$2 trillion, in three to five years. Present trade settlement volume stands at about US$50 billion. Keith Pogson, managing partner, financial services, Far East, at Ernst & Young, says there is scope for Hong Kong's financial institutions to launch more yuan products. However, there needs to be sufficient access to currency and demand from investors. 'We have seen a relaxation in the management of the renminbi exchange rate. However, this doesn't represent a fully convertible open currency,' Pogson says. 'Until we head in that direction, I think we will find it difficult to see sufficient on-shore, off-shore convertibility that would make sense to see investment opportunities such as IPO's and funds denominated in the renminbi currency.' Mark McCombe, HSBC's CEO for Hong Kong, believes expanding the settlement pilot programme is another step towards the yuan becoming an international currency. 'We believe the expansion of the pilot scheme will not only increase the volume of renminbi-denominated trade outside Asia, but also solidifies Hong Kong's role as a leading offshore renminbi centre,' he says.