SF seeks to be hub for Chinese currency

For all its charms and concentrated wealth, San Francisco is not known as a world financial center like New York, Hong Kong or London.

That may change if it succeeds in a drive to become the West Coast hub for business transactions conducted in Chinese currency.

I'm told the city is working on a proposal to become a center for offshore trading in Chinese yuan, allowing the currency to be used more widely beyond China's borders.

Mayor Ed Lee's office could not be reached for comment before press time Friday, but city officials are said to have lined up a "who's who in the San Francisco financial industry" to assist in the proposal.

Should the idea bear fruit, San Francisco would join Hong Kong, London and Singapore as places where offshore trading in yuan (a.k.a. renminbi or RMB) is growing, as China slowly moves to open up its financial system.

"It makes sense for an offshore center to be in a place like the San Francisco area that does a lot of trade-related business with China," said UC Berkeley economist Barry Eichengreen, author of "Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System."

It also makes sense for the Chinese government, which would like to lessen the influence of U.S. dollars, the primary mechanism of international trade, and increase the influence of the yuan. At the same time, Chinese and U.S. companies doing business with one another can save costs incurred by going through the process of currency exchange and conversion, and will have more "redbacks" on hand to invest in China.

"It can be a win-win," Eichengreen said.

Local banks authorized to process accounts receivable in Chinese currency are an essential go-between for offshore trading. Wells Fargo, which began accepting deposits and providing loans in yuan at its Shanghai branch late last year, would seem to be a good candidate.

Other banks mentioned in connection with the initiative include Silicon Valley Bank, which entered into a joint venture with Shanghai Pudong Development Bank last year; EastWest Bank, a Chinese American bank in Los Angeles with branches throughout California and China; and Bank of Communications, China's fifth-largest bank, which opened its West Coast flagship in San Francisco in 2011.

If the city were to become an offshore hub, it probably won't happen anytime soon. Some people close to City Hall have quietly pursued the idea for more than a year, and it has a number of hoops to jump through, including go-aheads from the U.S. Federal Reserve and the Chinese government.

Closing deals with Chinese entities takes time - witness the months it's taking to get San Francisco and China Development Bank to sign, seal and deliver the state-owned bank's $1.7 billion financing of the Hunters Point/Treasure Island project.

And not everyone is enthused at the offshore yuan idea. "Most of the capital flowing out of China is government owned or controlled. That's the thumb China puts on the scale, until it's dissuaded or prevented from manipulating its currency," said Robert Scott, director of trade and manufacturing policy at the Economic Policy Institute in Washington.

"Frankly, I'd much rather see San Francisco investing its energies in things inside the United States, like jobs and research and development."

Ronald McKinnon, an international economist at Stanford University, doubts offshore yuan trading will do much to enhance China's standing in the international banking system.

"In the end, (the yuan) cannot be a principal international currency as long as it maintains capital controls and additional limits on internal interest rates," said McKinnon, author, most recently, of the "The Unloved Dollar Standard: From Bretton Woods to the Rise of China."

Eichengreen is more upbeat. "China will have to liberalize capital flows, and offshore is the way to do it - (going) small time before you do it big time. It will be a gradual process, but in 10 years time the (yuan) will be used all over the world," he said.

"But the dollar will be used even more, because it's had a major head start."

Investment flows: Meanwhile, the world's largest genome mapping company is getting closer to acquiring Mountain View's Complete Genomics, a 7-year-old old company specializing in gene-sequencing machines.

The $117 million all-cash buyout by BGI-Shenzhen, an early participant in the Human Genome Project, got clearance from the U.S. government in January, despite national security fears raised by a rival bidder, Illumina, a gene-sequencing company in Hayward.

Investments are also going the other way. Menlo Park's Sequoia Capital put an undisclosed amount into a Chinese mobile payment startup, QFPay (similar to San Francisco's Square) last month, just weeks after it led a $16 million investment in Reocar, a Chinese online rental car company.

In the same month, San Bruno's VantagePoint Capital Partners led a $10 million Series A investment in Xiaozhu.com, an online room rental startup, not dissimilar to San Francisco's Airbnb.

Troop surge: Recently elected Assemblyman Phil Ting, D-San Francisco, just got a promotion.

He's now chairman of a new Select Committee on Asia/California Trade and Investment Promotion, adding to the state's push to do more business there.

Ting, San Francisco's former assessor-recorder, is a founder and co-chairman of ChinaSF, the public/private agency that has helped more than a dozen Chinese enterprises invest and open up branches in San Francisco.

Ting says he will use that experience "as the basis for expanding a similar effort to other parts of California. This is an opportunity to assist all the state's efforts to ramp up its Asia presence."

Source: http://feeds.sfgate.com/click.phdo?i=3b559273d2c3dfa86add2954735e9047

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