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MOF issues yuan bonds in Hong Kong

By Chen Yang (Global Times)

08:05, June 29, 2012

The Ministry of Finance (MOF) started to issue 23 billion yuan ($3.61billion) worth of yuan-denominated sovereign bonds in Hong Kong yesterday, as part of efforts to develop the offshore yuan market in Hong Kong.

The issuance is the fourth and largest of its kind, following the sale of 6 billion yuan in yuan-denominated sovereign bonds in 2009, 8 billion yuan in 2010 and 20 billion yuan in 2011, respectively.

Among the total, 15.5 billion yuan worth of bonds, with maturities ranging from three to 15 years, have been sold to institutional investors. Besides, 5.5 billion yuan worth of bonds will be offered to individual investors through retail counters.

A highlight of this round of issuance is that 2 billion yuan worth of bonds have been sold to foreign central banks for the first time, which serves to meet the needs of countries wishing to hold the yuan as their reserve currency and promote the internationalization of the yuan, Hong Kong Chief Executive Donald Tsang Yam-kuen said yesterday.

The issuance was warmly welcomed by institutional investors in Hong Kong. The institutional subscription reached about 58.68 billion yuan, over three times higher than the issuance size, Vice Minister of Finance Li Yong said in Hong Kong yesterday.

The total subscription amount from five foreign central banks was 3.06 billion yuan, 1.53 times higher than the allocated volume, Li said, without naming the banks.

The bond issuance, together with a package of financial policies released by the State Council Wednesday ahead of the 15th anniversary of Hong Kong's return to China, aims to promote the use of the Chinese currency in overseas markets, analysts said yesterday.

"The yuan's internationalization has been hindered by decreasing yuan deposits in Hong Kong for five straight months. Individuals and trading companies don't want to hold the Chinese currency mainly due to growing expectations of yuan's depreciation," Ma Jun, chief economist with Deutsche Bank Hong Kong, told the Global Times yesterday.

"It is a proper time to trial the yuan's convertibility on the capital account, as market expectations of the yuan's appreciation have weakened, so the move would not lead to large-scale hot money inflows and threaten the financial stability," Liu Dongliang, a currency analyst at China Merchants Bank, told the Global Times yesterday.

Meanwhile, China's central bank has already cut interest rates and lowered banks' reserve requirement ratio to counter capital outflows, Liu noted.

Some other countries are also pushing their credentials as offshore yuan centers. Australia is holding preliminary talks with authorities from the mainland and Hong Kong about establishing an offshore yuan market in Sydney, in a bid to serve growing demand for Sino-Australian trade, South China Morning Post reported yesterday, citing unnamed sources.

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