BEIJING: China will give London-based investors the right to buy up to 80 billion yuan (RM41.71 billion) worth of mainland stocks, bonds and money market instruments, boosting the city's efforts to be the next offshore yuan trading centre after Hong Kong.
The agreement, announced by Britain and China in a joint statement yesterday, falls under the Renminbi Qualified Foreign Institutional Investor plan, or the RQFII.
This is the first time the RQFII has expanded outside Hong Kong to give investors more avenues to invest yuan and more incentives to hold the currency - an outcome desired by China, who wants to turn the renminbi into a widely-traded currency some day.
In return for the RQFII, the British government agreed to start talks to allow Chinese banks to set up wholesale branches in the United Kingdom, the two governments said, reducing regulatory hurdles for Chinese banks expanding in Britain.
"The renminbi will now have a firmer footprint in the European market," ANZ analysts said in a note.
"With the increasing presence of Chinese banks in London, the granting of the RQFII licence will strengthen and widen the platform for London to develop the offshore RMB (renminbi) bond market."
Frances Cheung, a strategist at Credit Agricole CIB in Hong Kong said the amount granted under RQFII was substantial, underlining London as an important partner when it comes to yuan liberalisation.
"This, together with FX swap arrangement in Europe shows that China is trying to reach more parts of the world," Cheung said.
China last week also signed a 300 billion yuan swap agreement with the European Central Bank in the second-largest of such deals to date.
Under yesterday's agreement, London and Beijing will also allow the yuan to be traded against sterling directly, as opposed to going through the dollar, thereby markedly reducing transaction costs.
A handful of countries, including Singapore, Germany, Taiwan and Kenya are vying for Beijing's approval to be a designated centre for clearing yuan trades outside of China in the hope of offering what may be a lucrative financial service.
But Chinese analysts have said London is a natural choice given it is as a major centre for global currency trades. Reuters