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SHANGHAI - China's leading online payment firm Alipay and Agricultural Bank of China (ABC), the country's third-largest lender by assets, will set up branches in Luxembourg, announced Luxembourg's finance minister at a forum in Shanghai.

"We are delighted to welcome Alipay to Luxembourg where it will join other leading innovative e-payment companies such as Paypal and Amazon Payments. This is a strong reflection of Luxembourg's position as a modern, dynamic banking hub which provides an environment for e-commerce companies to thrive," said Pierre Gramegna on Thursday.

Alipay's move came after a visit by the Crown Prince of Luxembourg and the country's deputy prime minister and minister of economy to Alipay's Hangzhou headquarters in East China's Zhejiang province in December. There they were told of the growing interest among Chinese companies to use Luxembourg as a gateway to the European market.

Gramegna also said ABC is preparing to set up its EU headquarters in Luxembourg.

Five major Chinese banks have chosen Luxembourg as their hub in Europe confirming its attractiveness as an entry gate to the EU single market, he said. "With these new financial players from China, Luxembourg will also further increase its leadership as a European yuan hub."

Luxembourg has reached a deal with China's central bank to appoint a bank to clear transactions in the Chinese yuan.

It will be the third of its kind in Europe, after China Construction Bank and Bank of China were recently designated as clearing banks for London and Frankfurt respectively.

Luxembourg boasts Europe's largest yuan deposit with 79.4 billion yuan by the end of the first quarter of 2014 and maintains the lead in yuan-denominated loans, fund and bonds.

With a string of deals clinched with China's central bank, Europe is rising as an offshore yuan center other than Hong Kong.

Europe is likely to become the second-largest offshore market for the yuan, with a deposit base expected to reach 2.5 trillion yuan by the end of this year, Deutsche Bank strategist Liu Linan said in a research report published on Tuesday.

According to Deutsche Bank, London will focus on institutional investment demand and has great potential to develop offshore yuan products, while Frankfurt will tend to corporate demand for yuan services and financing solutions.

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