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Hong Kong companies to issue RMB bonds

By Wang Lan (chinadaily.com.cn)
Updated: 2008-12-16 19:55

The State Council, China's cabinet, has recently allowed enterprises and financial institutions registered in Hong Kong to issue renminbi denominated bonds, a major step forward in turning Hong Kong into an offshore renminbi center and another step towards the opening up of China's financial market.

Related readings:  CDB to sell first-ever RMB bonds in Hong Kong  RMB bonds good for mainland, Hong Kong  NDRC: China to continue towards market determining RMB

The new move comes as the State Council introduced a series of guiding opinions last Saturday to boost domestic economic growth amid the rising uncertainties from the global economic recession.

Zhou Xiaochuan, governor of China's central bank, reportedly said today that Hong Kong has the right conditions to be a renminbi offshore center because it has already had many renminbi businesses.

The past year has witnessed a rapid increase in renminbi deposits as well as the volume of renminbi circulating in Hong Kong. Figures show that renminbi deposits in Hong Kong peaked 77.68 billion yuan ($11.34 billion) in May 2008, reaching a level three times that of a year earlier.

Experts and analysts said the rapid growth in renminbi deposits in Hong Kong would create a large demand for renminbi bonds. "The demand and supply dynamics for a global Chinese bond market already exist," said Jing Ulrich, managing director and chairman of China Equities at JP Morgan.

"With a sound legal framework and large pool of finance professionals, Hong Kong is considered a prime location for a global Chinese corporate bond market. In the medium to long term, Hong Kong may benefit greatly as an offshore renminbi centre," Ulrich added.

Economists and financial experts agreed it is a good opportunity to further internationalize the renminbi at a time when the major currencies of the world are growing weaker and the renminbi is stable and becoming more widely recognized. "The move is an attempt to promote the renminbi as a major currency in the region and in the world," said Hu Yonggang, a professor of economics at Shanghai University of Finance and Economics.

Experts expect detailed measures to come out soon that will facilitate qualified Hong Kong entities to issue renminbi bonds. "Increasing the capacity of the financial systems of Hong Kong to handle economic and financial transactions denominated in the renminbi, which is what we are trying to achieve, will be of great benefit to the country," said Joseph Yam, Chief Executive of the Hong Kong Monetary Authority, in an earlier report. "Our sophisticated financial infrastructure and efficient financial intermediation can help serve the many needs for financial services on the mainland," he said.

Economists and financial experts said the move is also expected to help ease the funding constraints for cash-strapped Hong Kong companies, which are feeling the pinch of the global financial difficulties.

From January 2007, the central bank started to allow qualified mainland financial institutions to issue renminbi bonds in Hong Kong to further internationalize renminbi business. In June 2007, China Development Bank issued 5 billion yuan in renminbi denominated bonds in Hong Kong, initiating the renminbi bonds issue in overseas markets.

Since then, several mainland commercial banks including Bank of China, China Construction Bank and Bank of Communications have also issued renminbi bonds in Hong Kong, with the combined amount reaching 12 billion yuan.