ZURICH — China and Switzerland are poised to sign a financial deal on Jan 21 to pave the way for the establishment of an offshore renminbi market in Zurich.
“A memorandum of understanding will be signed between the central banks of the two countries during Premier Li Keqiang’s visit to Switzerland,” a government official told Xinhua. “It is an important step in the internationalization of the RMB, especially in Europe.”
Li arrived in Zurich on Jan 20 to attend the annual meeting of the World Economic Forum (WEF) in the Swiss ski resort of Davos and pay a short working visit to Switzerland.
He is scheduled to deliver a keynote speech on China’s economy and reform efforts to the participants of the forum and meet with Swiss leaders on Jan 21.
“Financial cooperation will be the brightest spot of Premier Li’s visit to Switzerland,” the official said. “The two countries will announce the plan to set up an offshore RMB market in Zurich.”
Under the deal to be signed, China will give Switzerland a quota of 50 billion yuan ($8 billion), under its Qualified Foreign Institutional Investor (QFII) scheme to support the establishment of the Zurich offshore RMB market, while the first branch of a Chinese bank will be set up in the Swiss financial hub for future RMB clearance after it gets approval from regulators of both sides.
The QFII program kicked off in 2002 to allow foreign investment in Chinese securities using foreign currencies.
China has established offshore RMB markets in Hong Kong, London, among other places, in a drive for the internationalization of its currency.
The Chinese and Swiss central banks already signed a bilateral currency swap agreement worth 150 billion yuan ($24 billion), in July last year, which was intended to provide liquidity support to economic and trade exchanges between the two countries.
It is Li’s second visit to Switzerland since he took office in 2013, and this year marks the 65th anniversary of the establishment of diplomatic ties between the two countries.
“This shows the importance China attaches to its relations with Switzerland,” said Dong Jinyi, former Chinese ambassador to Switzerland. “Though Switzerland is not of big size, it plays a big role in China’s overall relationship with Europe.”
The Chinese Foreign Ministry said Li’s visit is also aimed to reap the “dividend” of a free-trade agreement between the two countries after it took effect in July 2014.
Switzerland, famous for its precision instruments and pharmaceuticals, was the first country among the world’s top 20 to have a free-trade agreement with China.
“The China-Switzerland free trade agreement has exemplary effect. It will not only enhance the economic and trade cooperation between the two countries, but also encourage other countries to follow the lead and work together with China for common development,” said Chen Fengying, a senior researcher with China Institute of Contemporary International Relations.