China's central bank on Tuesday announced a raft of measures meant to underpin the growth of Renminbi business in Hong Kong in what analysts see as an initial step towards offshore services in the yuan.

The People's Bank of China (PBC) issued an announcement proclaiming that it will expand the provision of position squaring and clearing services for banks in Hong Kong.

Typically, it gave the nod for Hong Kong banks to exchange the RMB cash held by transportation, telecommunication, medical and educational service providers into Hong Kong dollars. The conversion of dollars into yuan, however, is still banned for them.

Such services have been limited to shops, restaurants and hotels.

The cash exchange limit was increased from 6,000 yuan (741 US dollars) to 20,000 yuan equivalent per transaction for individuals.

Mainland banks may receive, through the PBC's clearing bank in Shenzhen north of Hong Kong, RMB remittances from Hong Kong residents up to a maximum of 80,000 yuan per person per day, up from the previous level of 50,000 yuan.

The credit limit of 100,000 yuan imposed on RMB cards issued by Hong Kong banks will be removed, and it will be left to decide by the issuing banks at their own discretion based on market principles, the PBC said.

The central bank also gave the green light for Hong Kong residents to use RMB checks to make payments in the neighboring Guangdong Province, subject to a limit of 80,000 yuan per account per day.

Just two years ago, China's mainland and Hong Kong signed a landmark agreement allowing the special administrative region (SAR) to offer limited yuan-denominated services. The move is considered a partial relaxation of the yuan on a capital account tightly controlled by China's central bank.

The deal covers deposit-taking, foreign exchange, remittances and credit cards.

The size of yuan transactions has since been increasing, and the PBC said there are now 38 banks in Hong Kong offering personal RMB business to their clients, covering nearly all retail banks in Hong Kong.

It said the more liberalized measures would be conducive to economic integration, trade and financing cooperation between Hong Kong and China's mainland and to strengthening Hong Kong's status as an international financial hub.

Cao Honghui, a research fellow with the Chinese Academy of Social Sciences (CASS), agreed. "Whether Hong Kong can become a more influential financial center depends on the process of Renminbi internationalization and the role Hong Kong plays in that process," he said in a phone interview with Xinhua.

He said Hong Kong eclipses Shanghai in law enforcement, protection of property rights and financial facilities, which gives the SAR an upper hand to become a world-class financial hub.

There is still a long way to go for the building of yuan offshore centers, but the use of yuan overseas is a "general trend", Cao said, adding that he believes Renmbinbi will become a regional circulating currency in the foreseeable future.

Yi Xianrong, another well-known CASS financial expert, said although the yuan business volume is trifling compared with that of local currency, the PBC's decision would facilitate the average Hong Kong residents who favor shopping in neighboring mainland cities, as well as mainland tourists to Hong Kong.

Source: Xinhua