Qianhai and the CNH



Qianhai

Qianhai is a special economic zone in Shezhen, near Hong Kong.  It will be a testbed for Yuan convertability.  Right now, there are 2 version of the yuan: the mainland Chinese yuan (CNY), which has currency controls placed on it, and the offshore yuan (CNH), which has a slightly different value.  (And of course, the two versions of the yuans are separate currencies from the Hong Kong Dollar (HKD), Taiwan Dollar (TWD), and the Macanese Pataca (MOP)).  Qianhai will use the CNH as its native currency, and become sort of a "colony" of Hong Kong.

"China had announced it would let firms in Qianhai, a $45 billion special economic zone in Shenzhen near Hong Kong, take out yuan loans from banks in Hong Kong, with tenors and interest rates to be set independently, also a major step towards liberalising the country's interest rate mechanisms." (Reuters).

The People's Bank of China (PBOC) is the central bank for the CNY. The Hong Kong Monetary Authority (HKMA) is the central bank for the HK$.  But what is the central bank for the CNH?  The Bank of China Hong Kong (BOCHK), which just calls itself a "clearing bank" for the RMB.

The main difference between the CNH and the CNY are interest rates, with the offshore rate being lower.  International companies can issue bonds in CNH, known as "dim sum bonds".  Yuan deposits in Hong Kong may reach 2 trillion yuan by 2014.  Taiwan is also getting in on the CNH boom.

Long-term, if the Qianhai project is successful, the CNH may subsume the HKD and the TWD and become an international reserve currency.  But for now, the easiest way of thinking about it is to see Qianhai as a new country, with two proud parents, China and Hong Kong.  I have theory that China is really an empire made up of 20+ countries, so this would just be another one. Qianhai will soon indeed become the "Manhattan of the Pearl River Delta".