Renminbi bonds to be issued in Hong Kong

The Chinese government plans to issue Rmb6 billion (£537m) of renminbi-denominated bonds to be sold in Hong Kong on September 28.

The issue, announced last week, is the first of its kind and is seen as further evidence of China’s readiness to internationalise its currency.

Earlier this month HSBC issued Rmb2 billion of renminbi-denominated bonds to investors in Hong Kong. The offer was more than twice over­subscribed, attracting Rmb4.4 billion.
Cecilia Chan, director and head of fixed income, Asia-Pacific, of Halbis, part of HSBC Global Asset Management, says the government’s bond launch can be seen as further support from China to develop Hong Kong as an offshore renminbi financial centre.

But she does not yet expect this to have any implication for renminbi convertibility. “The investor universe of the new Chinese government bonds would be limited to Hong Kong,” says Chan. “They will provide an alternative investment option to existing renminbi holders in Hong Kong, offering a potentially higher yield with very low credit risk.”

Chinese banks have issued over Rmb30 billion of renminbi bonds in Hong Kong since the government first permitted their issuance in 2007.

Chan says that while there is plenty of investor demand for further new Rmb bond issuance in Hong Kong, investors are mainly buying on a “buy and hold” basis, and secondary market trading is limited. “This will continue until international investors can formally be allowed direct access into the Rmb bond market,” says Chan.

However, Mark Williams, an economist at Capital Economics, describes the bond issuance as “a turning point towards the internationalisation of the renminbi.” Williams says that the small amounts involved will mean the immediate impact of September’s bond issue will be negligible.

“But alongside the Chinese central bank’s participation in currency swaps and the government allowing a limited number of Chinese companies to conduct trades in renminbi, it is an important development,” he says.

“To internationalise, the currency needs to be convertible, floating and it needs to have an established market,” he says. “That is still a long way off. But this represents another step towards that target.”