London’s asset managers will be able to invest renminbi directly into China, after the City was granted an RMB Qualified Foreign Institutional Investor (RQFII) quota.
Until now, investors have gone through counterparties or affiliates in Hong Kong with QFII allowances to invest in Chinese shares and bonds.
However, after two days of negotiations between UK Chancellor George Osborne and Chinese counterpart Vice-Premier Ma Kai, London has been given an RMB 80 billion RQFII quota. It is the first financial hub outside greater China to be granted a RQFII quota.
"Today we agreed the next big step in making London - already the global centre for finance - a major global centre for trading and now investing the Chinese currency too,” Osborne said.
London already accounts for 62% of global RMB trading conducted outside of China and Hong Kong, and 28% of all international RMB payments are made in the UK, surpassing Singapore, according to UK’s Treasury.
The RQFII programme was launched in 2011 to allow qualified investors to raise offshore renminbi funds and invest directly into China’s onshore securities market.
Under the China-UK agreement, the Prudential Regulation Authority will also begin discussions with Chinese banks in London to enable them, for the first time, to apply to establish wholesale branches in the UK. The five biggest Chinese banks already have a presence in London.