Taiwan must liberalise to make most of offshore renminbi-study

LONDON, June 25 Tue Jun 25, 2013 9:32am EDT

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LONDON, June 25 (Reuters) - Taiwan needs to nurture its underdeveloped bond market and ease capital account restrictions in order to maximise the potential of its fledgling offshore renminbi (RMB) market, according to a report released on Tuesday.

The study by Chatham House, a London think tank, projects that Taiwan will accumulate 400 billion in renminbi, or yuan, deposits by 2017 as more trade with China is conducted in the currency.

That would make Taipei an offshore RMB centre one-fifth the size of Hong Kong's, which has the lion's share of the market.

The report can be accessed at:

here%20Economics/0613bp_taipei.pdf

Taipei recently launched a currency clearing system with the mainland that will increase RMB liquidity, but the Chatham House report listed a series of obstacles that Taiwan will have to overcome if it wants to support the market.

These include the competitiveness of Taiwan's banks and its stunted corporate bond market, which is much smaller than its neighbours'.

Taiwanese firms that own more than 30 percent of a Chinese company are barred from issuing debt, while mainland companies and financial institutions are not allowed to issue RMB bonds.

What's more, overseas investors need to pay a 15 percent tax when buying bonds issued in Taiwan.

"Regulatory limits, high taxes on bonds and lack of clarity and direction in Taiwan's policies could slow the development of the market," the Chatham House report said.

London and Singapore are the biggest centres for offshore RMB outside Hong Kong.

London bankers and lawyers attending the launch of the report said the birth of the market in Taiwan gave London, with its dominance in banking transactions and expertise in wealth management, an extra opportunity to tap an even deeper global pool of RMB liquidity.

London is facing competition, mainly from Paris, to establish itself as the main RMB hub in the European time zone.

On Saturday the Bank of England and the People's Bank of China (PBOC) signed a 200 billion yuan ($32.6 billion) swap line aimed at averting a cash crunch in London in case RMB liquidity were to evaporate - a step that bankers said would reinforce confidence in London as an RMB centre.

China has been promoting the overseas use of the yuan in trade and investment since the 2008 global financial crisis caused dollar trade finance to dry up and brought home to Beijing the risks of China's massive exposure to the dollar.

Nearly 15 percent of China's total trade was settled in yuan in the first quarter, compared with zero in 2010.

In a sign of keen official interest in the issue, the PBOC, which has signed 20 RMB swaps with central banks, is convening a major symposium in Beijing next week to discuss RMB internationalisation.

(Reporting by Alan Wheatley; Editing by Louise Heavens)

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