CORRECTED-UPDATE 2-China details plans for zone to lead yuan reform
(Corrects 18th paragraph to show China will support telecoms joint ventures in Qianhai, not wholly owned firms)
* Plans experimental zone in Shenzhen for offshore yuan
* Hong Kong to get new opportunities in telecoms, healthcare
* China eyes reforms to globalise yuan, reignite growth
By James Pomfret and Alison Leung
HONG KONG, June 29 (Reuters) - China unveiled measures on Friday to create an experimental business zone in the southern boomtown of Shenzhen that will lead its drive to internationalise the yuan and deepen ties with Hong Kong.
China, aiming to reignite growth and eventually establish a financial market on a par with New York or London, laid out details for the Qianhai economic zone, about a hour's car drive from Hong Kong.
It will be developed over the next eight years on reclaimed land in western Shenzhen and serve as an experimental zone for offshore yuan transactions.
The $45 billion project to create a "mini-Hong Kong" financial centre also promised new opportunities for Hong Kong firms in financial services, telecommunications and other sectors as the former British colony prepares to mark the 15th anniversary of its return to China.
"The country's policy is to gradually open up its capital account and realise the full convertibility of the yuan," said Zhang Xiaoqiang, vice chairman of China's National Development and Reform Commission, the state planning agency.
"Qianhai, as the first experimental zone of the country's modern service industry, should be a pioneer of that," he told a news conference.
China has been gradually loosening its tight grip on the yuan since a landmark revaluation in 2005, both under pressure from trading partners who claim an undervalued currency has distorted trade and as it aims to make the yuan a global currency.
WHERE REFORM BEGAN
The plan enlists Shenzhen, site of the original market-economy reforms that more than 30 years ago began China's rise to its position now as the world's second-biggest economy, to help drive a new wave of financial reforms aimed at reinvigorating growth.
China's factory sector shrank in June for the eighth consecutive month according to a preliminary manufacturing survey by HSBC. Premier Wen Jiabao's 2012 economic growth target of 7.5 percent would, if realised, be the lowest since 1990.
China hopes the yuan will one day attain global status similar to the dollar, and aims to turn Shanghai into a financial hub on a par with New York and London by 2020.
But the journey will be a long one, with full yuan convertibility that would allow the currency to flow freely across boarders, a prerequisite to global financial greatness, still considered a long way off.
"They are not ready," said Dariusz Kowalczyk, economist at Credit Agricole CIB.
"For full convertibility you need to have a much more liberalised foreign exchange and interest rate policy."
Liu Dongmin, a senior researcher at the Chinese Academy of Social Sciences who helped to draft part of the Qianhai plan, said China should move prudently in freeing up the yuan.
"The best way is to do an experiment first," he said.
"When pushing yuan globalisation, we must take full advantage of the Hong Kong market and also help further develop the market in Hong Kong."
The plan announced on Friday will allow eligible firms in Qianhai to enjoy a preferential 15 percent corporate tax rate and aims for the zone to issue yuan bonds in Hong Kong.
China will also offer support to Hong Kong and Macau companies to operate telecoms joint ventures in Qianhai, paving the way for operators such as Hutchison Whampoa and PCCW to offer services on the mainland.
In addition, Hong Kong investors would be allowed to open private international schools and hospitals in Qianhai. (Additional reporting by Tian Chen in Hong Kong, Langi Chiang in Beijing, Pete Sweeney in Shanghai; Writing by Edmund Klamann; Editing by Neil Fullick)
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