China to back London as offshore renminbi centre

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China is for the first time to give formal backing to moves by British banks to turn the City of London into an offshore trading centre for the renminbi, UK government officials have told the Financial Times.

As George Osborne, the chancellor, prepares to hold talks in London with Wang Qishan, the Chinese vice-premier, on Thursday British officials say a joint statement by both countries backing the growth of renminbi trading in London is set to be the centrepiece of their meeting.

British banks and financial institutions have for some time been pressing for London to become an offshore trading centre for the Chinese cuurrency. Treasury officials say British banks and financial services institutions increasingly want to trade in the renminbi, seeing this as a rapidly growing market in foreign exchange and bond issuance.

According to these officials, the gradual relaxation of rules on the use of renminbi in international transactions means 7 per cent of Chinese external trade is now settled in their national currency. This has jumped from a figure of 1 per cent 12 months ago.

“Last year, Britain and China said they would explore options to make London a renminbi trading centre in future,” said a UK official. “A statement saying they both back the idea is therefore a significant step forward.”

This visit comes just three months after a trip to London by Chinese premier Wen Jiabao, in which he expressed anger at the way David Cameron had publicly criticised human rights violations in China.

Ahead of the trip, Chinese officials said there had been little change in their country’s approach to the UK. They repeated claims that Britain is objectively slipping down the list of China’s trading partners, losing out to Germany and France.

However, Chinese officials said they expect today’s meeting to involve businesslike discussions and that they want to boost the bilateral trading and financial relationship with Britain.

Britain and China will also sign a memorandum of understanding on infrastructure cooperation that boosts the possibility of Chinese investment in UK projects. British officials say the MOU is important because it signals to Chinese regulatory bodies that they can give the go-ahead to such investment in future.

In a sign that China may be looking for fresh investment in the UK, Mr Wang will be accompanied by Lou Jiwei, head of China Investment Corporation, the country’s sovereign wealth fund.

On the issue of human rights, the UK government believes that Mr Cameron is taking a stance that is no different from that of his main European partners, such as Germany’s Angela Merkel.

There is a strong belief in London that Mr Wen felt obliged to speak out on the issue back in June because China felt pressurised by the support of the US and UK for the popular uprisings in the middle east.

“The reality is that we have not seen any fallout in recent months when it comes to our practical relations,” said a senior British official. “Our companies continue to make progress in China and there is no sign we are being retaliated against. Exports in goods went up 40 per cent last year in sterling terms and this year are up 20 per cent.”