VZCZCXRO2512
RR RUEHCHI RUEHCN RUEHDT RUEHGH RUEHHM RUEHNH RUEHVC
DE RUEHHK #0708 1071146
ZNR UUUUU ZZH
R 171146Z APR 09
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC 7418
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS HONG KONG 000708 
 
SIPDIS 
 
STATE FOR EAP/CM AND EEB/OMA, TREASURY FOR OASIA 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ETRD HK CH
SUBJECT: New RMB Trade Settlement Prospect Pushes Hang Seng Up 
 
¶1.  Summary: The April 8 announcement by the Chinese State Council 
that Renminbi (RMB) will be approved for use in trade settlement in 
selected cities has pushed the Hong Kong stock market up almost 
eight percent, with financial stocks leading the surge.  Although 
details of the scheme have yet to be revealed, local officials say 
Hong Kong is ready and predict RMB bank balances will begin to 
increase again after falling for several months.  End Summary. 
 
Hong Kong Investors Optimistic About RMB Settlement 
 
¶2.  Since the Chinese State Council announced April 8 that it would 
approve the use of RMB as a settlement currency for cross-border 
trade in Shanghai and four Guangdong cities (Guangzhou, Shenzhen, 
Dongguan and Zhuhai) the Hong Kong stock market has climbed 7.8 
percent.  Pro-Beijing Ta Kung Pao quoted China Banking Regulatory 
Commission (CBRC) Vice Chairman Cai Esheng as saying details of the 
pilot scheme might be released jointly by PBOC and CBRC as early as 
next week.  Share prices of Hong Kong Shanghai Bank Corp. (HSBC) and 
Bank of China Hong Kong (BOC HK), two Hong Kong banks likely to 
benefit from the pilot project, have risen 14 percent and 15.5 
percent respectively.  Bank of China announced plans to increase its 
stake in BOC HK to 75 percent from its current 66 percent stake. 
 
¶3.  Premier Wen Jiabao confirmed to Hong Kong reporters in Hainan 
April 11 that the RMB trade settlement scheme will also apply to 
Hong Kong and Macau.  Premier Wen reminded reporters that the RMB 
trade settlement scheme is only a pilot project and that it would 
require a "relatively long process" for the Chinese currency to 
achieve full capital account convertibility.  Wen told the press 
that some problems still had to be resolved before the pilot project 
could be unveiled.  Hong Kong reporters speculated that adjustments 
to export tax rebates might be slowing implementation of the 
scheme. 
 
Hong Kong Ready, Come Join Us! 
 
¶4.  Undersecretary for Financial Services and the Treasury Julia 
Leung, in a radio interview April 11, said 400 enterprises have 
already been selected to join the scheme: 100 from Shanghai and 300 
from Guangdong.  These approved companies will be able to settle 
their trades with Hong Kong enterprises in RMB.  Leung noted that 
foreign companies hoping to participate in the scheme could set up 
an office in Hong Kong and open an RMB bank account.  Under the 
provisions of the Closer Economic Partnership Arrangement (CEPA), 
Hong Kong registered companies could all benefit.  Leung said Hong 
Kong is ready to take advantage of the new facility.  The Hong Kong 
Monetary Authority has already been conducting tests of the RMB 
clearing system and it will be ready to start operation when the 
Mainland authorities announce the operational details. 
 
Boost For RMB Deposits 
 
¶5. The Hong Kong Economic Times reported Goldman Sachs is predicting 
that RMB deposits in Hong Kong will increase sharply following 
implementation of the RMB trade settlement scheme.  By the end of 
February 2009, RMB deposits in Hong Kong stood at 54 billion RMB. 
 
The Numbers 
 
¶6.  HIBOR quoted by Hang Seng Bank today at 16:54 pm stood at 0.08 
percent for overnight, 0.12 percent for 1-week, 0.20 percent for 
2-week, 0.27 percent for 1-month, 0.89 percent for 3-month and 1.16 
percent for 6-month borrowings.  The Hang Seng closed April 17 at 
15601.27, up 4.5 percent or 699 points for the week. 
DONOVAN