Ms Julia Leung Under Secretary for Financial Services and the Treasury 10 July 2009

1. Ms Julia Leung Under Secretary for Financial Services and the Treasury 10 July 2009

2. 2 Major developments Key features of pilot scheme Scope of services by participating banks Clearing arrangements RMB funding sources for banks Outline

3. 3 Dec 08 & Apr 09 29 June 09 2 July 09 6 July 09 Major developments

4. 4 What trades are covered? Imports and exports between pilot cities in Mainland China (initially being Shanghai, Guangzhou, Shenzhen, Dongguan and Zhuhai) and Hong Kong, Macau and ASEAN What enterprises can make use of the scheme? Mainland: As approved by relevant authorities (Mainland designated enterprises or �MDEs�) Hong Kong, Macau and ASEAN: Any enterprise with genuine trade background and engaging in trade transactions with MDEs Key features of pilot scheme

5. 5 How can enterprises get related RMB services? Banks in Hong Kong (all Authorized Institutions), Macau and ASEAN can become participating banks and provide RMB services to relevant enterprises outside Mainland China To handle related cross-border settlements, such banks can engage either: Clearing Bank in Hong Kong (as operator of HK�s RMB RTGS) or/and A correspondent bank in Mainland China Key features of pilot scheme

6. 6 1. Deposit-taking Any enterprise located in areas covered by the trial scheme with genuine trade background can open deposit account Deposit accounts primarily for handling RMB receipts and out-payments related to settlement of trade transactions with the MDEs Such RMB deposits can also be used for buying RMB bonds issued in Hong Kong (if the enterprise�s bank has joined HK�s RTGS) Scope of services by banks (1)

7. 7 2. Currency exchange Banks can provide currency exchange based on actual transactions From HKD (or other currencies) to RMB: Up to amount of actual trade transaction and paid directly to Mainland trade counterpart For repayment of trade finance RMB funds maintained in deposit accounts can be converted back to HKD (or other currencies) Scope of services by banks (2)

8. 8 3. Remittance Outward and inward remittances for and up to amount of actual trade transaction 4. Trade finance: Up to amount of actual trade transaction and paid directly to Mainland trade counterpart Such trade finance obtained cannot be used for other purposes Interest rate to be determined by banks on commercial basis Scope of services by banks (3)

9. 9 5. Interbank transfers / Cheques �Same-name� transfers between accounts of the same enterprise held at different banks allowed for pooling together RMB funds for trade settlement Either by interbank transfers or cheques Scope of services by banks (3)

10. 10 Clearing arrangements (1)

11. 11 Clearing arrangements (2)

12. 12 Conversion through Clearing Bank in Hong Kong or Mainland correspondent bank Three channels of interbank funding, whereby relevant banks can borrow RMB funds from: Clearing Bank in Hong Kong Among banks that have engaged Clearing Bank in Hong Kong for RMB settlements Mainland correspondent bank RMB funding sources for banks