Business / Markets

Luxembourg woos China for yuan business

By Cecily Liu (China Daily) Updated: 2014-03-17 03:16

According to official figures as of December 2013, Luxembourg has the largest pool of renminbi in the eurozone with 64 billion yuan ($10.42 billion) in deposits, 53.8 billion yuan in loans, 24.7 billion yuan in renminbi bond listings and 256.4 billion yuan in renminbi-denominated assets held in investment funds.

France leads eu rozone in offshore RMB payments

RMB clearing bank in London within sight

Luxembourg finance minister Pierre Gramegna recently indicated that he would press for the setting up of an official renminbi-clearing bank and for an RQFII quota during his upcoming trip to China.

RQFII, which stands for Renminbi Qualified Foreign Institutional Investors, is a program launched by the Chinese government in 2011 that allows qualified overseas financial institutional investors from overseas to invest in China's onshore financial markets directly using the renminbi.

An official clearing bank facilitates the efficient clearing of offshore renminbi transactions, achieved through the appointed bank's direct cooperation with the People's Bank of China, the Chinese central bank.

One of the key drivers behind the growth of renminbi transactions in Luxembourg is the city's growing number of funds that invest in renminbi opportunities. These funds, collectively called UCITS, which stands for Undertakings for Collective Investment in Transferable Securities Directives, are recognized by institutional investors globally, especially in Asia and Latin America.

For this reason, an increasing number of fund managers create UCITS in Luxembourg for global distribution and a growing number of these UCITS focus on investing in offshore renminbi products including "dim sum" bonds, sources say. Dim sum bonds are bonds issued outside China and issued in yuan.

"There are many Luxembourg-based UCITS funds that invest in the offshore renminbi market," says Stefano Chao, an investment manager at AZ Investment Management, which is a subsidiary of Italy's largest independent asset manager Azimut Holding.

"When we talk to institutional investors in Latin America and Asia, they feel comfortable about investing in UCITS. Luxembourg in this sense is a good jumping point for the internationalization of the renminbi, because Luxembourg funds that invest in renminbi can be bought by international investors globally," Chao says.