Hong Kong scraps yuan-conversion limit as stock link begins

Customers hold Chinese yuan banknotes as they purchase Beijing ducks at a store in Beijing, China

Hong Kong is scrapping a daily limit on the amount of yuan residents can buy, helping reinforce its dominance as an offshore trading center for Chinese assets as Shanghai’s stock market opens to the city’s investors.
The 20,000 yuan (USD3,265) conversion cap has existed since 2004, when Hong Kong became the first city outside of China to allow banks to accept yuan deposits. The end of the restriction puts locals on a par with non-residents, who have been able to buy unlimited amounts of China’s currency in the offshore market since August 2012. The change will take effect on Nov. 17, the same day the Shanghai stock link begins, according to Hong Kong Monetary Authority Chief Executive Norman Chan.
The cap has been a hindrance for Hong Kong as cities including Singapore and London seek to become rival yuan centers. China, the world’s second-largest economy, is encouraging greater use of its currency in global commerce and investment and the yuan ranked seventh for cross-border payments in September. Outside of China, Hong Kong has the largest pool of yuan savings and is where most yuan-denominated bonds are traded.
“It’s definitely an important step in yuan internationalization,” said Nathan Chow, Hong Kong-based economist at DBS Group Holdings Ltd. “Removing the cap will increase Hong Kong’s yuan holdings and fuel demand for yuan investment products.”
The change will cement Hong Kong’s status as an offshore yuan center, Hong Kong Chief Executive Leung Chun-ying said in a statement posted on a government website.
Shares of BOC Hong Kong Holdings Ltd., Hong Kong’s sole yuan clearing bank, rose as much as 4.9 percent after the HKMA announcement. The stock climbed 3.8 percent to close at HK$27.35. The lender will start providing A-shares margin trading as well as mortgage and personal loans in the Chinese currency next week, it said in an e-mailed statement yesterday. Hang Seng Bank Ltd, a subsidiary of HSBC Holdings Plc, said it plans to offer more yuan structured products in the near future. Fion Li, Bloomberg