Another Chinese bank for Luxembourg?

by Stephen Evans

China and Luxembourg are getting closer every month. There appears to be a fair chance that another Chinese bank could be in the process of opening in this country, adding to the six already here.

Speaking at the RMB Forum event at the Philharmonie on June 3, the Chinese ambassador to Luxembourg Zeng Xianqi said “we are working on this.”

Luxembourg pulled off a public relations coup last month when (by a matter of hours) it became the first non-Asian country to be accepted as a member of the Asian International Investment Bank (AIIB). This planned international financial institution is seen by some as the Chinese rival to the likes of the IMF, World Bank and the Asian Development Bank.

There was some risk to the Grand Duchy from this stance given US opposition to its allies signing up, but there was safety in numbers as other European countries also have also joined.

Now the wait is on to see which financial capital will be chosen to host the AIIB’s European office. The signs look hopeful for Luxembourg. In his opening speech to the RMB Forum ambassador Zeng said: “Luxembourg has an important position, thanks to its political stability, good economic conditions and smooth relations with China. It is to be the official founding member of the AIIB and we hope the bank will set up its European headquarters in Luxembourg. We are working on this.” 

There has also been excitement in the Luxembourg fund sector when it was offered the chance to invest directly into the Chinese economy. The Grand Duchy had been excluded from this “Renminbi Qualified Foreign Institutional Investor” scheme, putting the country at a disadvantage, both practically and in terms of its image as a major financial sector player. However this changed in April this year, with Luxembourg now on a par with other major banking centres.

Moreover, Luxembourg could be in a position to exploit this scheme to the full. During the panel discussions several experts said that RQFII quotas were not being used completely in most countries. Nervousness about the state of the Chinese market and a lack of investor appetite were cited as reasons. However, Luxembourg could get around this because it is an international fund centre with a big market for its products in Asia, as well as Europe and the Americas. Asia appetite for Chinese investment is strong, so when a few regulatory hurdles are cleared, this could be a major bonus for fund firms here.

Shops, hotels and restaurants are also likely to benefit from a boost in the numbers of Chinese tourists. The ambassador predicted that in ten years' time there will be 500 million Chinese leaving the country each year for business and leisure, three times the current level. Does this mean three times more tourists visiting the "Forest and Fortress" (the literal translation of Luxembourg’s name in Chinese)?