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China gives Australia investment rights, yuan clearing bank

Monday, November 17, 2014 - 18:57
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China is giving Australia more access to its capital markets and allowing it to clear yuan trades, measures that would boost Beijing's efforts to free Chinese financial markets and promote global usage of its renminbi currency.

[BEIJING] China is giving Australia more access to its capital markets and allowing it to clear yuan trades, measures that would boost Beijing's efforts to free Chinese financial markets and promote global usage of its renminbi currency.

The agreements, which were announced by the Chinese central bank, coincided with China and Australia signing a landmark free trade deal on Monday as President Xi Jinping began his state visit to Australia.

Under the Renminbi Qualified Foreign Institutional Investor, or RQFII scheme, Australian investors have been given the right to invest up to 50 billion yuan (US$8.2 billion) in the capital market in mainland China.

Created to allow foreign investors a channel through which to use yuan to buy Chinese stocks, bonds and other money market instruments, the RQFII scheme was meant to be a way of slowly freeing China's capital markets. "It's making it much easier for Australian fund managers to be able to access the domestic Chinese market," said Andrew Whitford, general manager and country head Greater China, Westpac Banking Corp.

Chinese state news agency Xinhua said separately that China was also opening its interbank bond market wider to Australia's central bank by increasing the investment quota for the Reserve Bank of Australia (RBA) to 10 billion yuan. It did not say what the RBA's previous quota was.

As China's maturing economy slows, Beijing wants to find new growth drivers to reduce the nation's reliance on export-led manufacturing, and developing the domestic financial market has been identified as an area for change.

Encouraging greater use of the yuan globally is also key to the government's long-term plans of reforming its economy and reducing its vulnerabilities to the dollar.

China owns the world's largest foreign exchange reserves at US$3.9 trillion, about a third of which is invested in dollars.

To promote international usage of the yuan, China has signed yuan clearing agreements with over a dozen countries including Canada, Malaysia and Qatar to allow them to set up a yuan clearing bank within their borders.

Clearing banks handle all parts of a currency transaction and in doing so reduce the costs of and time taken for each deal.

But as China works on building a worldwide payments super highway that can clear yuan payments globally, some experts say yuan clearing centers will be obsolete once the payments system starts running.

REUTERS