China will promote further development of the offshore yuan market in Hong Kong as part of a new package of policies for the Special Administrative Region (SAR) ahead of the 15th anniversary of its return to China, the Xinhua News Agency reported yesterday.

On financial cooperation, the government will support third parties to use Hong Kong as an avenue to settle trade and investment in the yuan and further enrich the offshore yuan products, Xinhua reported.

The move to expand offshore use of the yuan will further secure Hong Kong's place as a major international financial centre, said Andy Ji, currency strategist at Commonwealth Bank of Australia in Singapore.

London and other financial centers like Singapore are also vying for a share of the rapidly growing offshore yuan market.

Shen Minggao, China economist for Citigroup in Hong Kong, also said that the development would be good for offshore yuan liquidity in Hong Kong, which is showing signs of flagging after several years of explosive growth.

Though the yuan is still tightly controlled by the government, offshore yuan deposits at banks in Hong Kong had boomed in recent years as China slowly relaxed its grip on the currency, encouraging it to be used more often in settling international trade and for certain investments.

Such deposits have declined steadily this year, however, as China's economic growth has slowed and as the yuan's appreciation against the US dollar has come to a halt, sharply reducing its investment appeal.