Financing through bonds gets thumbs-up

Shanghai Daily, November 24, 2011

China will allow more foreign institutional investors to access the country's bond market and urge more Chinese firms to issue bonds overseas, a senior central bank official said.

"We'll actively and gradually open up China's bond markets to more foreign capital with the wider use of the yuan in overseas countries,'' Xie Duo, director of the financial market department of the People's Bank of China, said in Beijing yesterday.

He added that more domestic companies will also be allowed to seek financing via bond issues overseas.

China is seeking to internationalize its currency and reduce its reliance on the US dollar through this method.

China opened the door to its interbank bond markets to foreign institutional investors more than two years ago, and so far about 30 investors have injected more than 10 billion yuan (US$1.57 billion) in the domestic bond market.

The government also has been actively trying to expand the offshore bond markets, especially in Hong Kong. The total funds raised by Chinese firms from the sales of so-called dim sum bonds in Hong Kong may jump to 50 billion yuan this year, said Zhou Xiaochuan, governor of the PBOC, in August.

By the end of September, the total yuan savings in Hong Kong hit 622 billion yuan, the most held by a region outside the Chinese mainland.

Dim sum bonds are yuan denominated and issued in Hong Kong. They are attractive to foreign investors who want exposure to yuan assets, but are curbed by China's capital controls from investing in domestic debt.

The Ministry of Finance announced last month it will trial a program to allow Shanghai and Shenzhen as well as Guangdong and Zhejiang Provinces to issue bonds for the first time.