Yuan Bonds Soon To Be Issued In Hong Kong

by Mary Swire, Tax-News.com, Hong Kong

01 June 2007

Hong Kong Financial Secretary Henry Tang has expressed hope that the administrative arrangements and legislative procedures for the issuance of renminbi-denominated financial bonds in Hong Kong can be introduced in the first half of this year.

Speaking after the Discussion Forum on Strengthening Hong Kong as China's International Capital Formation Centre on Thursday, Mr Tang said the city has finished its work on the matter. The Chinese authorities meanwhile, are still working on the legislation.

Noting that a number of Mainland financial institutions want to issue the first batch of renminbi bonds in the city, he said the matter is now under study, and the Central Government will make a final decision.

On the Mainland stock market's recent fluctuation, Mr Tang argued that as H-shares are an important component of the city's stock market, the Mainland market's movement will have a certain impact on Hong Kong. However, he believed Hong Kong's market will experience a smaller fluctuation than the Mainland's because its management is linked with international systems.

Mr Tang urged investors to do a risk assessment before making any investment decisions.

Earlier in the year, the Chinese government agreed to a further expansion of renminbi, or yuan, business in Hong Kong which will allow Chinese financial institutions, upon obtaining approval, to issue renminbi financial bonds in the territory.

Welcoming the development at the time, Hong Kong Chief Executive, Donald Tsang observed that this new category of renminbi business is conducive to business opportunities for banks and enhancing financial flow between Hong Kong and the Mainland.

"The further expansion of renminbi business in Hong Kong embodies the support of the Central Government in strengthening Hong Kong's position as an international financial centre," he stated.

The liberalisation of China's banking industry has also allowed foreign banks to offer yuan services in the Mainland. After receiving Chinese local banking licences, four foreign banks, HSBC Holdings, Citigroup, Standard Chartered and Bank of East Asia, in April opened retail banking outlets in Beijing, Shanghai and Shenzhen among other cities. With local licences from the China Banking Regulatory Commission, the banks are able to offer yuan-denominated services without the high limits which had previously restricted them to the top slice of the market.

Previously, the banks operated only through branches, and had been able to offer restricted yuan-denominated services since last December, when China opened its banking market as required under its WTO accession agreement.

There were already more than 70 foreign banks in China prior to last December, but most of them were limited to handling foreign currency business, and they held just 2% of the country's banking assets.

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