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Yuan-denominated bonds approved for HK

China has given approval for mainland lenders to sell yuan-denominated bonds in Hong Kong, a key step for the Chinese currency in moving onto the international stage, a senior Hong Kong official said yesterday.

"This is the first time that mainland financial institutions are allowed to issue yuan-denominated bonds outside [of China]," said Joseph Yam (任志剛), chief executive of the Hong Kong Monetary Authority.

"This is the first step for the yuan moving towards the international stage; it's a very important step. And this happens in Hong Kong; I feel very encouraged by the move," Yam said.

The reaction elsewhere was equally positive, with Standard Chartered Bank calling it a significant move towards the ultimate goal of full yuan convertibility and integration of China's economy with the outside world.

"[It] facilitates more efficient cross-border capital flows and demonstrates China's determination to integrate more fully with the global economy," the British-based emerging market specialist bank said.

"If this new channel provides Chinese corporates, not just financial institutions, [the opportunity] to tap the bond market in the future, it could improve their funding structures and put pressure on domestic bond markets to further deregulate," it added.

Hong Kong Chief Executive Donald Tsang (曾蔭權) said Beijing's approval followed discussions held for over a year with the Chinese authorities.

"This new category of renminbi [yuan] business is conducive to business opportunities for banks and enhancing financial flows between Hong Kong and the mainland," he said in a statement.

Financial Secretary Henry Tang (唐英年) believed the move will promote economic integration between both sides, providing channels for returning yuan circulating in Hong Kong back to China.

Hong Kong banks have been allowed four types of yuan businesses -- deposits, withdrawals, exchange and remittances -- since February 2004.

At the end of November, yuan deposits at Hong Kong banks totalled 22.6 billion yuan (US$2.9 billion).

Bank of East Asia chairman David Li (李國寶) said he believed the move could accelerate the appreciation of the yuan by 5 percent to 6 percent this year and predicted that savings held in the Chinese currency would grow five-fold over the next two years.

The yuan was pegged to the US dollar until 2005 when Beijing decided to revalue and put the unit into a currency basket system, allowing a greater but still tightly controlled margin of flexibility.

Partly inspired by the move and news of a record trade surplus for last year, the yuan rose to a post-revaluation high of 7.7970 against the dollar yesterday.

China's soaring trade surplus -- US$177 billion last year -- is a constant cause of dispute, with the US charging that the yuan is kept deliberately undervalued to boost Chinese exports.
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