January 31, 2013 / 8:36 AM / 7 years ago

CNH Tracker-Favourable policies bode well for Taiwan's yuan business

By Michelle Chen
    HONG KONG, Jan 31 (Reuters) - Taiwan, a latecomer in
developing the offshore yuan business, is likely to catch up
quickly with a yuan currency clearing settlement agreement
finally signed and a package of favourable policies offered by
Beijing this week.
    Analysts say China's efforts to expand the offshore yuan
market beyond Hong Kong is accelerating, pointing to a slew of
Taiwan-related policies which have been recently announced.
    They also note that as a territory which has natural demand
for the yuan and which sees mainland China as its largest export
market, the island has the potential to accumulate yuan funds at
a fast speed. 
    "Taiwan has a big trade surplus with China, and if they
switch part of that to yuan settlements, it will be a boost to
its yuan pool," said Chi Lo, BNP Paribas' senior strategist in
Greater China, who expected its yuan pool to reach 100 billion
yuan by the end of the year.
    For the time being, only offshore banking units (OBU) of
Taiwan banks can take yuan deposits from overseas individuals
and companies, suggesting huge space to expand the pool once
local residents are allowed to do so.
    Yuan deposits with Taiwan OBUs stood at 21.5 billion yuan
($3.5 billion) by November, almost five times that of a year
earlier, but still well below Hong Kong's 603 billion yuan by
the end of 2012.      
    "Based on our unofficial survey, driven by demand for asset
diversification and expectation of RMB appreciation vs. the TWD,
40 percent of Taiwan residents would like to open RMB deposit
accounts, naming, to convert some deposits in TWD or USD to
RMB," Deutsche bank analysts said in a report released on
    Taiwan's central bank said it will allow local banks to
conduct yuan business as soon as before the Lunar New Year in
February, with daily yuan conversion capped at 20,000 yuan and
transfer amounts at 80,000 yuan, the same as Hong Kong.
    What is more encouraging is that schemes like the Renminbi
Foreign Direct Investment (RMB FDI) and Qualified Foreign
Institutional Investor (RQFII), which took years to launch after
Hong Kong's offshore yuan market came into being, are available
for Taiwan investors from the beginning of its development.
    Diversified repatriation channels with decent returns will
allow banks to provide higher interest rates for their yuan
deposits than Taiwan dollar products, which will attract local
companies and residents from other investments.
    Given the low yield of Taiwan dollar assets, about 11
percent of total banking sector deposits held by domestic
enterprises and individuals in Taiwan were foreign currency
deposits by end-November, and foreign assets of financial
institutions accounted for 38.4 percent of their total assets,
according to Deutsche Bank's statistics.
    That said, market players are still waiting to see whether
Chinese regulators will impose any restrictions on fund
movements among different offshore yuan markets and make Hong
Kong and Taiwan two separate centres, though most of them do not
think it likely. 
    They are also looking forward to more detailed guidance on
the currency clearing settlement agreement, such as how the
quota will be set and the amount Beijing will grant to the
    To facilitate cross-border trade settlement denominated in
yuan, participant banks can square their yuan positions with
yuan clearing banks and quotas are set each quarter or year as
per Hong Kong's experience to control yuan fund flows.   
   * Yuan deposits in Hong Kong increased to 603 billion yuan by
the end of December, up 5.6 percent from a month earlier, the
Hong Kong Monetary Authority said on Monday. Yuan loans amounted
to 79 billion yuan at the end of 2012, up 157 percent from 2011.
   * China kicked off its cross-border yuan loan scheme in
Qianhai on Monday with Hong Kong-based banks signing some 2
billion yuan in lending to mainland Chinese firms for 26
projects, a step further towards opening China's capital account
and internationalising its currency. 
   * Bank of China Hong Kong is designated as a market
maker for USD/CNH futures to be launched on Feb. 25 by the
Chicago Mercantile Exchange Group, becoming the sole bank among
the first group of market makers. 
   * Huaneng Power International Inc ,
China's largest independent power producer, completed its sale
of a 1.5 billion yuan, three-year dim sum bond at 3.85 percent
on Wednesday, a source close to the deal told Reuters.
   * Chinese property company New World China Land Limited
0917.HK completed its sale of a 3 billion yuan five-year dim sum
bond which was priced at 5.5 percent, according to a term sheet
seen by Reuters. The bond was warmly received in the market,
with the order-book exceeding 9.6 billion yuan from 111
   * The Bank of England is prepared in principle to become the
first G7 central bank to enter into a foreign exchange swap
agreement with China, Chris Salmon, the bank's Executive
Director for Banking Services said in London, opening the door
to another substantial step in moves to liberalise the yuan
    Taiwan's yuan deposits: link.reuters.com/huj65t
    Book runner:          Proceeds (RMB mln):       # of issues:
    1.HSBC                       6,018.0                   17
    2.Standard Chartered         3,625.5                    9
    3.BNP Paribas SA             2,284.3                    7   
    4.National Australia Bank    2,000.0                    3
    5.ICBC                       1,076.7                    3

    * Thomson Reuters data as of Jan. 31. 
CNH Tracker-Tight yuan funds offshore may cap new loan business
More stories about the CNH market                 
Daily onshore yuan reports                        
Daily China money market reports                  
Offshore yuan rate    Onshore yuan rate  
Offshore yuan dealt Onshore yuan on CFETS 
Offshore yuan bonds 
($1 = 6.2204 Chinese yuan)

 (Editing by Kim Coghill)
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