China has just implemented a pair of key steps geared at turning the renminbi or yuan into an international currency.
China has granted 10 banks quotas to sell a large batch of offshore renminbi bonds, also known as “dim sum bonds.” This is the first time China has publicly announced such a list of issuers.
China has also given its first-ever approval for a Chinese company to borrow renminbi directly from an offshore bank.
“We will push ahead with developing a virtuous cycle in renminbi flows, progressively expanding cross-border channels,” said Li Dongrong, Assistant Central Bank Governor.
The National Development and Reform Commission (NDRC) said it had given permission to 10 banks to issue a total Rmb25 billion (US$4 billion) of debt in Hong Kong. The list mainly consisted of large state-owned institutions such as the Industrial and Commercial Bank of China but also included the China subsidiaries of HSBC and Bank of East Asia.
The NDRC also allowed Guangdong Nuclear Power Group to borrow Rmb3 billion from Bank of China in Hong Kong. It said that this was the first time a China-based company had borrowed renminbi directly from an offshore bank.
In the past, Chinese companies borrowed money through their Hong Kong subsidiaries, restricting the size of the offshore renminbi loan market.
The growing demand for dim sum bonds in Hong Kong, plus more opening for the money to flow back into China, is likely to cause renminbi yields to rise, pushing offshore interest rates towards mainland levels.
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