HONG KONG, July 3 Hong Kong's offshore yuan business is an "ever-growing slice of cake", but if it doesn't want to eat it, that's its own problem, a People's Bank of China official said, when asked about a protest movement calling for democracy in the territory and threatening to disrupt its financial district.
A pro-democracy march on Tuesday, which organisers said attracted more than 510,000 people, and a subsequent sit-in by mainly student groups could turn out to be the biggest challenge yet to China, which resumed control over the former British colony on July 1, 1997.
Hong Kong has wide-ranging autonomy under an agreed formula of "one country, two systems", allowing protests such as Tuesday's march to take place, but China bristles at open dissent, especially over sensitive matters such as demands for universal suffrage.
The city accounts for 53 percent of global offshore yuan business, but if Hong Kong "does not want to eat it", it's the city's own business, said Guo Jianwei, deputy director-general at the monetary policy department of China's central bank.
He added that his comments to finance journal Caixin and other media in Beijing were in response to a question about the impact of Occupy Central, a group that organised an unofficial referendum on democracy in Hong Kong. Guo confirmed his comments to Reuters on Thursday.
The movement has threatened to lock down the Central business district of Hong Kong, home to some of Asia's biggest companies and banks, as part of its campaign to demand greater democracy in elections for the city's leader in 2017.
"We should not read too much into what he said. There might be some market volatility produced by the remarks, but no big impact on sentiment," said Ma Xiaoping, China economist, global research at HSBC.
Other market watchers said Hong Kong's role as the dominant offshore yuan centre cannot be replaced as China must rely on it to test pilot programmes to open up the domestic market to foreign investors.
"Hong Kong remains the first choice when China tests more relaxation of cross-border fund flows under the capital account given risk is controllable here," said Ngan Kim Man, head of RMB business strategy and planning at Hang Seng Bank.
China will balance risks and rewards when it reforms its financial market, and Hong Kong is a good springboard for China to expand its pilot schemes worldwide, Ngan added.
Authorities in China and pro-Beijing newspapers have criticised the Occupy Central campaign, saying it will damage Hong Kong and could hurt its standing as a financial centre.
On Wednesday, hundreds of Hong Kong police forcibly removed kicking and screaming protesters from the Central business district, holdouts of a mass rally demanding greater democracy from Communist Party rulers in Beijing.
Beijing has recently accelerated the pace to expand its currency's footprint beyond Hong Kong and Asia by setting up new yuan clearing banks in Europe.
The offshore yuan market is an open and competitive market which is not uniquely owned by Hong Kong, China's deputy finance minister Wang Bao'an told media in Beijing at the same briefing on Tuesday where Guo spoke.
Hong Kong can't rely only on the central government to enhance and develop its position in yuan business, instead, the key lies in the Hong Kong government, Wang said.
The city handles about 80 percent of China's cross-border trade settled in yuan and has the world's largest offshore yuan deposits of almost 1 trillion yuan ($160.9 billion).
($1 = 6.2145 Chinese yuan) (Additional reporting by Pete Sweeney and Shanghai Newsroom; Editing by Anne Marie Roantree and Jacqueline Wong)