China Merchants Bank plans Luxembourg branch

A man passes by a wealth management center of China Merchants Bank in Nanjing, capital of Jiangsu province. The bank has been approved to set up a branch in Luxembourg. ZHEN HUAI/CHINA DAILY

China Merchants Bank Co Ltd has received permission from the Chinese authorities to set up a branch and a subsidiary in Luxembourg, making it the fourth Chinese bank to have a presence in the Grand Duchy, said Pierre Gramegna, Luxembourg's minister of finance.

Other Chinese banks are also interested in entering the country, said Gramegna at a forum held in Beijing on Tuesday that aimed to promote Luxembourg as China's financial hub in Europe.

Chinese banks have chosen Luxembourg as a central platform in Europe, he said. From there, they manage a European network and help Chinese clients in their European trade deals and investments.

Bank of China Ltd opened a representative office in Luxembourg in 1979. It was later joined by Industrial & Commercial Bank of China Ltd and China Construction Bank Corp.

"The reason Chinese banks chose Luxembourg was to a large extent related to the acceptance by the Luxembourg regulator of China's supervision of its own banking industry as being equivalent to our own system. This allowed Chinese banks to set up branches in Luxembourg and gave them an important liquidity advantage," Gramegna said.

"Other European countries may not have been as welcoming," he said.

China's largest State-owned banks moved big chunks of their European business to Luxembourg as they sought to escape tougher regulations in the City of London, the Financial Times reported in 2012.

In a letter to the United Kingdom Treasury at that time, the Chinese banks strongly objected to uneven regulations and "rigorously demanding" liquidity requirements that forced them to transfer business and even the management of their European operations from London to Luxembourg, which is known for its light regulatory regime.

Gramegna said the Grand Duchy has competitive advantages over other European financial centers.

As the world's second-largest investment fund center after the United States, Luxembourg has more than 3,800 investment funds that manage assets of 2.5 trillion euros ($3.4 trillion).

Through the nation, China can sell renminbi-denominated investment funds to a large pool of investors.

The Luxembourg Stock Exchange was the first exchange to list a dim sum bond (a bond denominated in yuan and issued in Hong Kong) in Europe in 2011. It has listed 46 such bonds with a volume of 32.9 billion yuan ($5.3 billion).

It is still in discussions with the People's Bank of China for renminbi qualified foreign institutional investor status, Gramegna said.

The RQFII program allows qualified financial institutional investors from overseas to invest in China's financial markets directly using the renminbi.

Nicolas Mackel, chief executive officer of Luxembourg for Finance (a public-private partnership between the Luxembourg government and the Luxembourg Financial Industry Federation) emphasized that Luxembourg is a small country but a big player - just like Singapore.

"Do not make the mistake of thinking because the country is small, the activities are small. We operate in the whole of the European Union. That is our market," Mackel said.