Bond sale boosts yuan status
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China's finance ministry will issue bonds worth 8 billion yuan (US$1.2 billion) in Hong Kong in a second sale to bolster the yuan's status and build up the domestic currency's overseas market.
The Ministry of Finance will sell to institutional investors 2 billion yuan of three-year debt, 2 billion yuan of five-year bonds as well as 1 billion yuan of 10-year bonds on November 30. Another 3 billion yuan of bonds with maturities of two years will be issued to retail investors, according to a statement on the ministry website.
The move comes after China launched its first offshore sale of yuan-denominated sovereign bonds in September last year by offering a 6 billion yuan issue in Hong Kong at a higher coupon rate than on the mainland.
"The bond sale underscores China's support to develop the offshore yuan market and yuan-denominated notes in Hong Kong, the so-called dim sum bonds," the ministry said.
Hong Kong has been a key platform for the central government to promote the yuan, testing the offshore appetite for the currency before hoping to transform it into a regional, then a global channel of trade and finance.
"Developing the yuan bonds will boost investment channels of the Chinese currency, another vital part for the yuan to become a global reserve currency, apart from promotion of yuan settlement," said Wang Jianhui, a Southwest Securities Co analyst
The bonds have been very popular among investors in Hong Kong. The total yuan-denominated bond issuance will exceed 17.8 billion yuan this year, according to the Hong Kong Monetary Authority.
"The yuan-denominated bonds also help the Chinese government to control international hot money," said Wang. "It offers opportunities for international investors to share the appreciation of China's assets at a lower cost while allowing the government to track the amount of hot money."
Hot money is speculative capital that bets on the yuan's appreciation and enters China by means other than trade or foreign direct investment.
