Chinese banks will be able to apply to set up wholesale branches in Britain, under plans announced by George Osborne. The Treasury said the plans, which build on the capital’s role as the Western trading centre for the renminbi, could raise billions for the City and create hundreds of jobs.
The deal will also allow Chinese banks, five of which have branches in London, to expand their operations to corporate and institutional clients. The move will be welcomed by the institutions, which complained last year that new rules brought in after the downturn made it hard to operate in Britain. But it also drew criticism the Chancellor was going against the trend of requiring tougher rules on capital adequacy and money laundering.
Leading a trade mission to China, Mr Osborne said: “The Chinese currency, the renminbi, is not terribly well known in Britain at the moment. But over my lifetime I think it’s going to become almost as familiar as the dollar, and I want British businesses involved in trading it, in investing it.”
He added: “Today we agreed the next big step in making London... a major global centre for trading and now investing the Chinese currency, too. More trade and investment, means more business and more jobs for Britain.”
The agreement is the result of two days of talks between the Chancellor and his Chinese counterpart, Ma Kai. It underscores Britain’s determination to win a large share of the potentially massive Chinese market that has also seen the London Mayor, Boris Johnson, lead his own trade mission to the country. Mr Johnson’s six-day trip included a ride on the Beijing underground with the designer of the Olympic cauldron, Thomas Heatherwick, who was confirmed to have been commissioned to build at least two new metro stations there.
China has recently relaxed controls on the value of its currency as its economy continues to open up to international markets. But until now investors from London have had to go through Hong Kong before they were able to buy Chinese shares and bonds, potentially leading to higher costs. London now accounts for almost two thirds of global renminbi trading outside of China and Hong Kong.
Mr Osborne also said Britain’s financial regulators will start talks with Chinese banks in London to open branches for their wholesale businesses. Since the financial crisis, Britain has required most overseas banks to set up their UK operations as “subsidiaries” rather than branches, providing greater protection for depositors and taxpayers. But Bob Lyddon of IBOS Association, a London-based alliance of international banks, warned: “He can’t do this without flatly contradicting what he has done in other areas.”