New | Rewards and risks in U.K. yuan push
British PM's China visit gives a nudge to London's trading hub goals, but an inflow of Chinese funds could push up interest rates, analysts say
British Prime Minister David Cameron's visit to China this week will boost London as a yuan trading hub, but there are risks, analysts said.
"This is a very opportune time for Cameron to visit China," said Diana Choyleva, head of macroeconomic research at Lombard Street Research, a British economic think tank.
"One of the biggest positives for the UK is it can establish itself as a key offshore renminbi centre. The UK has a comparative advantage vis-à-vis China's reform. The UK's fund management industry is one of the biggest and most advanced in the world, along with the US," she said.
During his meeting with Cameron, Premier Li Keqiang announced China would support the development of London as an offshore yuan centre.
Opening China's capital account - allowing the free movement of capital in and out of the mainland - could lead to the British capital establishing itself as a key offshore yuan centre, Choyleva said. China's domestic savings every year total US$4.2 trillion, more than the US and Japan combined, she pointed out.
"If China opens up its capital account, UK fund managers can take a large chunk of that business," she said. The risks, however, are higher interest rates
