China's Ministry of Finance (MOF) said Tuesday that it planned to issue 6 billion yuan (US$878.5 million ) worth of Renminbi (RMB) treasury bonds in Hong Kong on Sept. 28.
The announcement, jointly made by the MOF and the government of the Hong Kong Special Administrative Region (HKSAR), is aimed at lifting the international status of the yuan.
It is the first time the central government has issued yuan-denominated treasury bonds outside the Chinese mainland.
The sale of such bonds to individuals and institutions in Hong Kong is meant to "promote the acceptance of the yuan for global trade among neighboring countries and regions" and also to "steadily expand the scale of Hong Kong's RMB bonds market", the MOF said in a statement on its website.
A lift to yuan as international currency
Analysts here said the bonds sale has a greater significance in offering a new price-guiding product on the Hong Kong bonds market and promoting the free convertibility of the yuan under the capital account in global trade.
Ding Zhijie, a professor with the University of International Business and Economics, said the international status of the yuan is in essence the acceptance of the currency outside the country.
That means individuals and institutions outside the country should be allowed to have access to hold the currency and also to make investment with the currency, he said. The latest move of the MOF would facilitate such a process.
Chen Bingcai, a foreign exchange expert, said there has already been holding of the yuan outside the country, since China launched in July cross-border trade settlement in yuan in some mainland cities for trade with Hong Kong, Macao and some regional trading partners.
"Naturally, there are needs for the yuan in Hong Kong to flow back into the country through investment," Chen said, "The issuance of yuan-denominated treasury bonds in Hong Kong would provide such a reliable yuan investment channel for yuan deposits in the city."
Actually, mainland financial institutions in Hong Kong had been allowed to issue yuan-denominated bonds in the city since the beginning of 2007, however, there had always been a lack of benchmark rates or guiding prices for the bonds.
Nearly 10 mainland financial institutions in Hong Kong, including the Bank of China, had issued a combined 30 billion yuan worth of bonds on the Hong Kong market since 2007.
The issuance of such yuan-denominated treasury bonds would form a benchmark rate, and therefore serve as the benchmark price for yuan assets in Hong Kong, Chen said.
Ding explained that prices of various bonds on the market are usually decided with reference to that of treasury bonds.
In the end, a market rate for yuan bonds could be formed in Hong Kong, as an offshore market for the yuan, and that rate could be parallel to the rate of the U.S. dollar formed on the London market, Chen said.
A lift to Hong Kong as international financial centre
"The move will further enhance financial cooperation between the mainland and Hong Kong, and strengthen Hong Kong's position as an international financial center", the MOF said in the statement.
Ding said the issuance would enrich yuan investment products and bond products to facilitate the yuan bond market in Hong Kong, and also help consolidate its international financial center status in the long term.
"Whether Hong Kong would develop into an international financial center which could be comparable with New York and London depends on how its economy is integrated with the mainland's," Ding added.
The HKSAR government said the step showed the central government's support for Hong Kong as an international financial center to further promote yuan business and illustrate the interactive, complementary and cooperative relationship between the financial systems of the mainland and Hong Kong.
The government said the issuance was a new milestone for developing yuan business in Hong Kong.
(Xinhua News Agency September 8, 2009)