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Offshore yuan market 'vibrant' despite slowing deposits
By Wang Xiaotian
Published: Nov 24 2011 8:53
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BEIJING - Although growth of Hong Kong's yuan deposits has slowed, the offshore yuan market remains vibrant and overseas demand for the currency will keep rising, Norman Chan, chief executive of the Hong Kong Monetary Authority (HKMA), said on Wednesday.

"Compared with last year, in 2011 some changes have taken place in regard to yuan flows in the offshore market, which will affect yuan deposits directly," Chan told reporters in Beijing.

The ratio of yuan inflows to Hong Kong against outflows to the mainland had decreased to 0.8-to-1 as of the end of September, from 1.5-to-1 in the first half and 3-to-1 in 2010, he said, adding that the situation in October was almost the same.

Analysts estimate that yuan deposits in Hong Kong might have dropped significantly last month because of declining trade volumes with the mainland and weakening prospects for the currency in the offshore market.

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    "A decline of yuan deposits doesn't mean the offshore market will lose its strong expansion momentum as long as financial activities related to the currency remain vibrant," said Chan.

    Yuan deposits in Hong Kong rose from 320 billion yuan ($50.4 billion) at the end of 2010 to 620 billion yuan as of Sept 30, with about 70 percent coming from corporate clients.

    Yuan-denominated loans by Hong Kong commercial lenders surged to 19 billion yuan in September from 2 billion yuan at the start of the year.

    "A possible decline of yuan deposits in October would be a short-term phenomenon ... that will not affect the offshore market's prosperity in the long run", said Chen Daofu, policy research chief of the Financial Research Institute at the State Council's Development Research Center.

    But in the next few months, yuan deposits probably will not grow as rapidly as in the first half, Chen said.

    Chan predicted rising demand for the yuan in Hong Kong would continue amid tightened liquidity on the mainland, lower financing costs in Hong Kong and increased flow-back channels for the yuan.

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