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China issues bonds in Hong Kong to boost international use of yuan


Wednesday, September 30th, 2009

The Chinese government has launched renminbi sovereign bonds in Hong Kong to boost international use of the yuan, the official news agency Xinhua said.

The issue of 6 billion yuan ($US878.5 million) was described as a key milestone in the internationalisation of the renminbi/yuan – the terms are interchangeable.
The report said the issue via Hong Kong would allow China to test the waters to see how a yuan-currency bond was accepted by foreign investors.  Given the limits on foreign investment in China, it made the issue through Hong Kong to take advantage of the territory’s developed capital markets.

There were $HK424.4 billion ($US54.4 billion) of bonds issued in Hong Kong last year, with 67 percent issued by the Hong Kong Foreign Exchange Fund, which was established to defend the Hong Kong dollar peg to the US dollar.  The other 33 percent were issued by development banks from outside Hong Kong and corporate bonds issued by local companies. There were no sovereign bond issues.

The yuan is also tied to the US dollar but allowed to gradually appreciate and has risen over 20 per cent since the peg to the dollar was removed in 2005.  The Chinese government has expressed concern that it is vulnerable to moves in the dollar and wants to encourage international use of the renminbi.  This is difficult as the yuan is not fully convertible to other currencies and China’s financial markets are comparatively undeveloped.

In July the People’s Bank of China announced new rules that will allow some international trade transactions to be settled in yuan, saying this would reduce foreign exchange risks and transaction costs for Chinese exporters.

Source:

www.xinhuanet.com/english/





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