China eyes adopting international law to spark life into trade zones

Tue Nov 5, 2013 4:09pm EST
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By Saikat Chatterjee and Michelle Chen

HONG KONG (Reuters) - China is considering the use of international law in a big push to get free trade zones up and running to promote the use of the yuan in global trade, which could challenge Hong Kong longer term as the main offshore center for the currency.

Sources said Chinese leaders have been discussing the adoption of an international legal system in the free trade zones (FTZs) for the first time to help lure foreign companies, although views are varied.

"Authorities recognize that providing a robust legal framework and infrastructure will attract global companies," said a Hong Kong government official briefed on the FTZ discussions. "But agreement on this is far from uniform."

Bankers said such a move would go a long way to make FTZs more competitive with Hong Kong, which has been the only notable success among China's attempts to allow the closely managed yuan to trade more freely.

"The offshore yuan hub in Hong Kong is an experiment," said Marc Chandler, global head of foreign exchange strategy at Brown Brothers Harriman during a visit to Hong Kong.

"And the policy mindset is if the experiment is successful, bring it back to the mainland and if not, abandon it."

Traditionally, Chinese leaders have promoted Hong Kong as the main offshore market for yuan trading. About 18 percent of China's global trade is now conducted in yuan, from just 1 percent in 2009, and much of it is routed through the territory.

Hong Kong's success has been underpinned by a strong rule of law and freedoms under the "one country, two systems" formula adopted when the territory was handed over to China by Britain in 1997.   Continued...

A paramilitary police officer stands in front of the Great Hall of the People at Beijing's Tiananmen Square, in this file picture taken November 7, 2012. REUTERS/Carlos Barria