Beijing will open channels for investment opportunities in the mainland for yuan held in Hong Kong
The government is holding talks with Beijing to open channels for investment opportunities in the mainland for yuan held in Hong Kong.

Foreign direct investment, the Qualified Foreign Institutional Investor scheme and re-insurance are potential channels being studied, Julia Leung Fung-yee, Under Secretary for Financial Services and the Treasury, told The Standard.

But she declined to comment whether the so-called "mini QFII" - a program that allows locals to invest in A shares - is being discussed.

Leung said the volume of trade settlement in yuan surged to 7.2 billion yuan (HK$8.27 billion) in May, from 400 million yuan in February.

Transactions are expected to grow even faster after the People's Bank of China expanded the pilot scheme last week to cover 20 provinces and cities in the mainland, as well as worldwide for overseas counterparts, Leung said.

This allows more flexibility in both current and capital accounts to pay for services imported to China, the under secretary said.

"For example, tour agents and investment banks will be able to accept yuan as tour fees or underwriting fees, instead of just Hong Kong dollars or foreign currencies," Leung said.

"Even H-share holders can receive yuan in dividend payment as the current regulation allows. Of course, that all depends on a company's policy and arrangement," she added.

Leung said the lack of yuan products for investment is the reason for the slow yuan deposit accumulation rate.

Yuan deposits in Hong Kong in May were about 84.7 billion yuan, up only 4.7 percent from the previous month, Hong Kong Monetary Authority data showed.

Building up an asset base for yuan investment is crucial to boost yuan liquidity, said Leung.

Besides opening investment channels in the mainland, the under secretary said financial institutions are ready to offer new yuan products.

As for yuan-denominated insurance policies and equities in Hong Kong, the under secretary said insurance products should be more readily available as less liquidity is required and risks are easily hedged.

"It's only the beginning of the yuan- product era," Leung said.