Osborne Unveils China Currency And Bank Plan

By Mark Stone, China Correspondent in Beijing

A 'groundbreaking' deal has been signed between the UK and China to allow London to become a global investment centre for Chinese currency.

The joint deal was signed in Beijing by UK Chancellor George Osborne and his Chinese counter-part, Vice-Premier Ma Kai.

The agreement will allow measures to be put in place enabling the Chinese Renminbi (RMB) currency to be invested in the UK for the first time ever.

"A great nation like China should have a great global currency," the Chancellor said at the announcement inside Beijing's ornately traditional Diaoyutai State Guesthouse.

"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.

"More trade and more investment, means more business and more jobs for Britain," Mr Osborne said.

The agreement will allow Chinese banks to open branches in London. At the moment, some Chinese banks have subsidiaries in the UK but not fully fledged branches.

An investment licence with a quota of RMB80bn (£8.2bn) has been agreed by the two sides.

The announcement is the result of a day of talks between Mr Osborne and Mr Ma as part of the ongoing Economic and Financial Dialogue (EFD) between Britain and China.

The talks signal a thaw in diplomatic relations betwen the two countries

It represents the first government-to-government talks between the UK and China since Beijing effectively froze diplomatic relations after David Cameron's meeting with the Dalai Lama last May.

Mr Ma described the talks, which included broad discussion of global financial stability, as "candid, practical and fruitful".

"The two sides agreed that the complex global economic situation requires countries including China and the UK to take active actions and enhance macro-economic policy coordination to boost job creation," the vice-premier said.

In September 2011, the Chinese and British governments jointly declared an interest in supporting the international use of the RMB with London as the hub.

Stage one of that agreement saw the trading of RMB in the UK.

Stage two, outlined today, will see London become an investment hub for the RMB.

Effectively, the agreements mean that Chinese banks are now able to operate in the UK in the same way as US giants like Morgan Stanley and Goldman Sachs.

Mr Osborne's aim is to encourage Chinese banks to use London as their operating hub outside China.

Its central timezone, its reputation as a financial centre and its distinction from the eurozone are all seen as attractive to the Chinese.

In a separate deal, the two men signed a Memorandum of Understanding (MoU) on civil nuclear cooperation.

"This agreement on civil nuclear cooperation is the first of its kind between our two countries - between the world's oldest civil nuclear power and the world''s fastest growing civil nuclear power," Mr Osborne said.

In practical terms, the MoU represents a green light from both governments for UK and Chinese civil nuclear companies to collaborate together and exchange expertise for investment.

"This means potential [for] more business for British companies and more jobs in the UK, and lower long-term energy costs for consumers," Mr Osborne said.

UK/Chinese commercial nuclear collaboration could come as soon as this Thursday.

The Chancellor is due to visit a nuclear power plant in southern China where he is widely rumoured to be signing a commercial deal which will give a Chinese nuclear operator a financial stake in the British nuclear industry.

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