LONDON, June 25 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
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
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:
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
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
(Reporting by Alan Wheatley; Editing by Louise Heavens)