Business pact: Monetary Authority Chief Executive Joseph Yam and People's Bank of China Governor Zhou Xiaochuan sign a supplementary memorandum of co-operation on the further expansion of renminbi business in Hong Kong, with Financial Secretary Henry Tang (centre) looking on.

Hong Kong and the Mainland have agreed that the sale and distribution of renminbi bonds, trading, settlement and custody, and pricing in the city will follow normal market practices.

Financial Secretary Henry Tang and Monetary Authority Chief Executive Joseph Yam today met with People's Bank of China Governor Zhou Xiaochuan to discuss the Mainland administrative arrangement for the issuance of renminbi-denominated financial bonds by Mainland financial institutions.

The new business will become operational once the Hong Kong renminbi Real Time Gross Settlement system is established, related administrative arrangements on the Mainland are introduced and clearing agreements are revised.

The two sides also agreed to explore and promote the further expansion of renminbi business in Hong Kong. Governor Zhou and Mr Yam signed a supplementary memorandum of co-operation, expanding co-operative arrangements to cover the new category of renminbi business.

Mr Tang presented detailed ideas and specific proposals on enhancing financial co-operation between Hong Kong and the Mainland.

These included establishing a complementary, co-operative and interactive relationship between the two financial systems, and enhancing the status of Hong Kong as the country's international financial centre, to make better use of the city as a pulling force for the development of financial centres on the Mainland.

He said Hong Kong can help Mainland financial centres develop in the following five ways:

* Hong Kong financial institutions entering the Mainland market can offer financial services;

* Mainland investors and financial institutions can gain access to the international market through Hong Kong;

* Hong Kong's investment tools can be used on the Mainland;

* renminbi business can be further expanded; and,

* enhancing the links between the Hong Kong and Mainland financial infrastructures.

Mr Tang said: "Under the framework of One Country, Two Systems, China has two different financial systems in Hong Kong and the Mainland, and this is a unique advantage. As the country's international financial centre, it is necessary for Hong Kong to act according to and be involved in the financial development of the country, and contribute to sustaining the country's fast economic growth. The development of renminbi business in Hong Kong is an important aspect of this."

Mr Yam said an important part of financial co-operation between Hong Kong and the Mainland is to explore how to progressively link the financial markets of the two places, moving eventually towards the free movement of financial institutions, financial instruments and funds, so as to increase the scope, efficiency and liquidity of the financial markets of Hong Kong and the Mainland. 

"The Monetary Authority will complete the work of establishing the renminbi Real Time Gross Settlement system and the related infrastructure as soon as possible to allow the new business to be launched quickly."