19 May 2009
May 19 (Bloomberg) -- HSBC Holdings Plc and Bank of East Asia Ltd. won approval to be the first foreign banks to sell yuan bonds in Hong Kong from Chinese regulators, who want to boost the currency's international role.Yuan bond sales by HSBC will help provide a benchmark for other foreign banks seeking funds in the Chinese currency, said Richard Yorke, president and chief executive officer of HSBC China. Chinese banks have already sold about 22 billion yuan ($3.2 billion) of bonds in the city, according to estimates from Industrial & Commercial Bank of China (Asia) Ltd.
"Given the important role that Hong Kong will play in yuan trade settlement, allowing institutions to issue more yuan bonds in Hong Kong will increase yuan liquidity there," said Kelvin Lau, an economist at Standard Chartered Plc in Hong Kong.
China is promoting greater use of the yuan for trade and investment after Premier Wen Jiabao expressed concern in March that the U.S. dollar will weaken. Hong Kong aims to establish itself as an offshore yuan finance center to help shield itself from the fallout from the global credit crisis. Wen met with Hong Kong Chief Executive Donald Tsang in April and pledged measures to help the city.
"We have been working closely with China's regulators in the development of the renminbi financial markets, both onshore and offshore," Richard Yorke, president and chief executive officer of HSBC China, said in an e-mailed statement today. "A renminbi issue by HSBC China will help establish a representative pricing benchmark for foreign banks."
Pilot Project
Bank of East Asia also received approval, said spokeswoman Salina Tong. The Hong Kong-based bank is preparing to arrange yuan bonds in the city, she said today.
China announced a pilot project on April 8 to allow international trade settlement in the yuan in Shanghai and four cities in Guangdong, the southern province bordering Hong Kong. The nation's finance ministry will also consider issuing yuan bonds in the city.
Hong Kong banks have been able to accept yuan deposits since 2004 and stores have increasingly welcomed payment in China's currency since 2003. The city's residents are limited to buying 20,000 yuan per day with their Hong Kong dollars to put in their bank accounts.
China's plan to allow Hong Kong banks to issue yuan debt is part of its push to encourage its use as a reserve currency and reduce the role of the U.S. dollar, according to an ING Groep NV. China's central bank has announced swap agreements with six countries to boost international trade in the currency.
‘Bread and Butter'
More use of the yuan in the city will spur investment in yuan bonds, after Chinese banks sold about 22 billion yuan of such securities, Stanley Wong, deputy general manager at ICBC (Asia) Ltd. said in an interview this month. His bank, the Hong Kong-arm of China's biggest lender, is also considering a yuan bond sale through one of its units, he said.
Hong Kong will help banks prepare to conduct more trade in the yuan after the settlement plan was released, Julia Leung, Hong Kong's undersecretary for financial services and the treasury, said in an interview last month.
"Trading and trade finance is the bread and butter business of banks," she said. "The bigger objective is to equip the banking system with the necessary expertise to conduct renminbi trade."
