September 8, 2009
China to issue renminbi bonds to offshore investors September 28, 2009
China will issue sovereign bonds denominated in its own currency to offshore investors for the first time this month – a crucial step towards making the renminbi a global currency.
The country’s finance ministry said it would issue Rmb6bn ($879m) of bonds in Hong Kong on September 28, in a move to “improve the international status” of the currency and to help mainland companies raise funds in the offshore bond market.
“While the amount is not large, this is a significant development for the internationalisation of the renminbi and for the development of the Hong Kong bond market,” said Wensheng Peng, an economist at Barclays Capital.
Beijing has taken a number of steps in the past year to encourage greater use of the renminbi in international transactions, beginning a process to decrease its dependence on the US dollar.
Senior government officials, including Premier Wen Jiabao, have expressed concern that the value of the dollar will decline, which would erode China’s $2,100bn in foreign exchange reserves, mostly held in US government bonds.
Beijing has signed deals since December with Malaysia, South Korea, Belarus, Indonesia and Argentina that allow it to receive renminbi instead of dollars for its exports to those countries.
In July, China began a pilot programme that expanded renminbi settlement agreements between Hong Kong and five major trading cities on the mainland, including Guangzhou and Shanghai.
But developing an offshore bond market will be crucial if the renminbi is to become a truly global currency, as it would provide foreign institutions with an attractive means with which to hold the renminbi.
The process would take time, said Frederic Neumann, regional economist at HSBC in Hong Kong, but issuing government bonds was an important step. He said the market in government bonds would help set the benchmark “risk-free” interest rate for renminbi debt, paving the way for further issuance by mainland companies.
Five state-owned Chinese banks, including Bank of China and China Construction Bank, have issued renminbi bonds in Hong Kong since 2007, when the government started to allow the deals. Earlier this year, HSBC became the first foreign bank to issue renminbi bonds in the territory.
bloomberg.com
