Yuan Fund Approved in Hong Kong

By ARIES POON And SHEN HONG

HONG KONG—Hong Kong's securities regulator approved the city's first yuan-denominated fund, run by the local unit of China's Haitong Securities Co., marking another step forward in Beijing's efforts to eventually make the yuan a major global currency.

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Beijing's move is another step toward goal of making the yuan, above, a major global currency.
.The approval came about three weeks after China and Hong Kong signed an agreement on July 19 to remove some restrictions on usage of the yuan—also known in China as renminbi—and its circulation in Hong Kong. The agreement will boost circulation of the yuan outside mainland China and facilitate the gradual internationalization of the Chinese currency, analysts say.

"As the renminbi becomes more popular and widely held outside the mainland, demand for renminbi-denominated investment and financial products will grow," Alexa Lam, deputy chief executive of the Securities and Futures Commission, said in a statement Friday. "Hong Kong's role is to make these products available and manage their risks."

In a statement from Haitong Securities' Hong Kong unit, the company said the approved yuan fund will initially focus on investments in offshore yuan-denominated fixed-income products such as bonds and commercial paper.

Pending approval from Chinese regulators, the fund will also seek to invest in onshore fixed-income products in China in the future, the company said.

Demand for the Chinese currency is increasing in Hong Kong, due to closer trade and economic ties between China and the former U.K. colony. In the first six months of this year, the value of trade settlement in yuan totaled 70.6 billion yuan ($10.4 billion), with settlements via Hong Kong accounting for 75% of the value, the People's Bank of China said. China's central bank added that the figure represents a sharp increase from 3.6 billion yuan in the second half of 2009.

Hong Kong is establishing itself as the foremost offshore yuan center and has been expanding the scope of yuan-based business since it started taking yuan deposits in 2004.

Write to Aries Poon at aries.poon@dowjones.com and Shen Hong at hong.shen@dowjones.com