THE pace of progress in developing Qianhai - a special economic zone in Shenzhen - is picking up steam, after the Central Government approved its blueprint recently.
Construction - the "hardware" - has begun in earnest in Qianhai. What you don't see - the "software" - is what Hong Kong banks and its service companies are focusing on to help turn Qianhai into a mini-Hong Kong.
The National Development and Reform Commission wants Qianhai to be a testing ground for freer convertibility of the yuan.
For a start, Standard Chartered Bank, among 15 others, has been given the green-light to offer loans totaling US$321 million worth of yuan to local companies registered in Qianhai.
John Tan, head of global markets at Standard Chartered Bank, said: "If you look at the pilot scheme in trade settlement, when they start, they started on a small-scale. Only 365 selected enterprises could do it. Eventually, it expanded to the whole country. I think Qianhai will do exactly the same. The government will like to see it in a controlled manner, to see how it goes."
In addition, Hong Kong banks will be able to freely negotiate the structure, terms, and interest rates of the loans. That means cheaper loans for Qianhai companies, compared to what mainland banks are offering.
Tan added: "Eventually, it will create a CNH [offshore renminbi deposits] yield curve in Hong Kong. This yield curve, very soon you will start to see CNH-fixing, and with CNH-fixing, we will see different types of CNH derivatives coming out of Hong Kong. That will be very important in the whole yuan internationalization."
The CNH market in Hong Kong currently stands at US$97 billion, up 9 percent compared to a year ago.
Qianhai gives Hong Kong banks an outlet to some of that surplus liquidity, and expectations are high that these channels will be broadened.
New rules relating to freer convertibility of the yuan in Qianhai is expected as early as the middle of this year. In the meantime, Chinese mainland authorities still have capital controls in place, which means that money in and out of the mainland will have to be approved by the People's Bank of China's Shenzhen branch.
While the banks have already started to cash in, Hong Kong's financial industry are waiting for their turn. The city's stockbroking association is hoping that Hong Kong brokers which set up shop in Qianhai will be allowed to sell shares of Hong Kong IPOs, for instance.
Insurance sector lawmaker Chan Kin-Por said there is no word yet on whether the threshold for Hong Kong insurers to enter the Qianhai market will be lowered to match domestic insurers at US$25.8 million.
Chan added: "If you want to apply for a licence on the mainland, you must have assets of US$5 billion. But for Hong Kong, because of the market size, not too many companies have assets of US$5 billion - so that is a requirement that most companies will not be able to achieve. We've been fighting for many years that this would materialize."
For Hong Kong's financial services sector, the bigger dream is not just to serve Qianhai, but the rest of China, when the mainland eventually throws open its financial markets.
(Source:Shenzhen Daily)