The central government yesterday gave the nod to mainland
lenders to issue renminbi bonds in Hong Kong, marking a
breakthrough in its currency polices and taking another step closer
to a fully-convertible yuan.
This is the first time the mainland has opened a capital account
in an overseas center following it so doing on its own current
account a few years ago.
The capital account tracks an economy's movement of funds for
investments and loans, while the current account tracks transaction
flows such as in goods, services and interest payments.
At a press conference, Hong Kong Financial Secretary Henry Tang
announced the Special Administrative Region (SAR) would discuss
precise details next week with the People's Bank of China, the
mainland's central bank.
The central government is also considering letting the yuan be
used to settle payments for mainland exports to Hong Kong, he said,
adding that no timetable has been set.
Hong Kong Chief Executive Donald Tsang welcomed the move. "This
new category of renminbi business is conducive to business
opportunities for banks and enhancing financial flows between Hong
Kong and the mainland," he said.
Local economists forecast a greater role for Hong Kong in the
reform of the country's foreign exchange regime, as the SAR enjoys
a wider opening-up.
"The RMB bond issue is a significant opening of yuan-denominated
services," said Frances Cheung, an economist with Standard
Chartered Bank. "We foresee more openings in the future."
Some even predict the central government may soon allow the yuan
to be fully convertible in the city on a pilot basis.
Hong Kong is viewed as a testing ground for the mainland for
innovations in its foreign exchange regime and offshore yuan
businesses. The SAR has become a proxy for foreign investors
wishing to gamble on yuan appreciation.
Four types of yuan businesses namely deposits, withdrawals,
exchanges and remittances have been allowed in the SAR since
February 2004. By November, a total of 22.6 billion yuan ($2.89
billion) was held by 40 Hong Kong banks as deposit.
The deregulation will directly benefit mainland banks, giving
them a new fund-raising platform apart from listing and retail
banking, economists said.
Three policy banks China Development Bank, The Import-Export
Bank of China and Agricultural Development Bank of China could be
the first batch of financial houses permitted to conduct the
business, said an analyst who declined to be named.
"Mainland commercial banks have various ways to tap Hong Kong's
equity market," he told China Daily. "It is policy banks
that urgently need fund-raising channels," he added.
(China Daily January 11, 2007)