BEIJING, Oct 8: China has signed a memorandum with Dubai to strengthen cooperation in supervising banks, the China Banking Regulatory Commission said on Monday.

Beijing will cooperate with the Dubai Financial Services Authority in areas such as information sharing and on-site inspections, according to the statement.

Liu Mingkang, China’s top banking regulator, signed the agreement with David Knott, chief executive of the Dubai agency.

The agreement is the 27th that the CBRC has signed with its overseas counterparts.

Under the terms of China’s Qualified Domestic Institutional Investor programme, banks may invest client money only in countries that have signed such a memo with the CBRC.

The memorandum comes at a time of deepening trade and investment links between China and Middle East, both flush with large reserves of dollars.Meanwhile, China will permit trading in interest rate forwards starting on Nov. 1, the latest step towards making its financial markets more market-oriented.

The People’s Bank of China said on Monday that it would allow forward rate agreements so that investors would have more tools to hedge against fluctuations in interest rates.

In a statement, the central bank said the forward rate agreements would also increase market stability and efficiency and improve the market’s price discovery mechanism.

“The launch of forward rate agreements will not only make the range of derivative products richer, giving investors greater flexibility in choosing the proper risk management tools, but they will also provide effective hedging measures for existing interest rate derivatives,” the central bank said in a statement.It said the only two derivatives that investors can choose from at the moment are bond forwards and interest rate swaps.

“It’s clearly a deepening of the financial markets in China,” said Glenn Maguire, chief Asia-Pacific economist for Societe Generale in Hong Kong.

But he added: “I don’t think it’s signalling a radical departure from the incremental approach we’ve seen to financial market liberalisation at this stage.” Lu Zhengwei, an analyst with the Industrial Bank in Shanghai,said the announcement was another step towards market-driven interest rates.

“It is also a must move in liberalising interest rates,” said Lu, adding traders were in need of such tools to hedge risks and to find out the true market rate.

Forward rate agreements permit investors and borrowers to set the interest rate on a short-term investment or loan in advance for a pre-determined period. —Reuters