Beijing: Five Chinese banks are each planning to issue about 2 billion yuan of bonds in Hong Kong this year in a state-led experiment to liberalize the country’s capital controls, banking sources said on 6 April.
The banks are China Export-Import Bank (Exim Bank), China Development Bank (CDB), Industrial and Commercial Bank of China Ltd, Bank of China and Construction Bank of China.
“The five banks might get official approval almost at the same time and then start issuing one by one. The first issue might be early in the summer,” he said.
Industry sources told Reuters earlier this week that Exim Bank and CDB had applied for approval to sell yuan-denominated bonds in Hong Kong as early as May.
The source said the central bank would publish rules soon to flesh out a draft directive released in January, allowing Chinese financial institutions to issue yuan bonds in Hong Kong.
Analysts said the launch of a yuan bond market in Hong Kong was both of political and practical significance.
The launch of a yuan bond market opens new business opportunities for Hong Kong and cements its role as the main jumping-off point for the mainland as it integrates into the global economy and gradually dismantles capital controls.
Chinese financial institutions can raise funds easily and more cheaply, at home. But selling bonds in Hong Kong would give them a chance to gain international experience by learning to price their debt in a market-driven environment.
“When issuing bonds on the mainland, interest rates controlled by the central bank are always taken as the reference point,” said Ding Zhijie, a finance professor at the University of International Business and Economics in Beijing.
Selling yuan debt in Hong Kong would be a step towards internationalizing yuan. Less than 25 billion yuan is deposited with Hong Kong banks, but this may not be an obstacle to the development of the market.