Osborne’s RMB deal is a major boost for the UK

Friday, January 20, 2012 | Posted by: Nick Farr
Categories: China | Tags: China, renminbi, London trading hub for yuan, Dim Sum bonds, European RMB trading, City of London to trade renminbi, yuan trading, RMB trading, Chinese UK investment, UK trade with China, UK Chinese trade, Chinese banks

I appeared this week on Jeff Randall’s Sky News show in an interview about George Osborne’s recent deal to allow banks in the City of London to trade renminbi (RMB). This deal is a potential game-changer for the UK’s trade relations with China. Find out how this deal can benefit UK businesses…

The deal would mean the UK becoming the first city outside Hong Kong to trade the Chinese currency. It demonstrates the good health of the business and political relationship between the UK and China. Further, the deal also confirms China’s perception of London as a major international capital market.

So how can UK businesses benefit?

1. Banks will set up trading desks that should create new jobs, profits and taxes.

2. Other RMB-denominated products, such as so-called Dim Sum bonds, which can currently only be issued in China or Hong Kong, may at some point be capable of issue in London, which would be further good news for UK banks.

3. For the major Chinese banks which are already active in the UK and vice versa, the deal is likely to facilitate transactions between the UK and China, as well as embedding London as a favoured banking location in Europe for Chinese institutions.

4. The difficulty in bringing RMB out of China is a real hurdle for UK businesses exporting to China, particularly for SMEs. In due course, UK businesses trading with China are likely to find it easier to be paid in RMB, which could give them a major competitive advantage. The opportunities for export growth to China are huge, especially when you consider the current rate of growth – UK exports to China were over £6 billion in the first three quarters of 2011, a 20% increase on the same period in 2010.

5. Chinese banks are actively looking to invest in Europe, with a particular appetite for the infrastructure and technology sectors. With London, the likely centre for their European operations, it is to be hoped that UK businesses and projects will be able to secure an important slice of this funding.

6. There are early signs that Chinese businesses are starting to show a renewed interest in IPOs in London. This recognition by Beijing of The City as a financial hub can only encourage that trend.

The City must be delighted that it has secured the deal. There is still much work to be done before the deal turns into reality, but the importance of the announcement should not be underestimated.  No market is attracting more interest than China at the moment and this announcement is an important step in building stronger trade relations with China, both within the financial sector but also for the wider economy.

Nick Farr
Partner and Head of China Britain Services Group
Grant Thornton UK LLP
T +44 (0)20 7728 2691
E Nick.farr@uk.gt.com

Image: (CC) Robert S Donovan

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