HSBC to issue yuan bonds

May 19, 2009

, BEIJING, May 19 – China has given the green light for Bank of East Asia and HSBC to issue yuan bonds in Hong Kong, state media said on Tuesday, the first time foreign-invested lenders have been allowed to sell such debt.

It would also give Beijing the opportunity to make the currency more prevalent as the government looks to expand its influence.

The Chinese arms of London-based HSBC and Hong Kong\’s BEA received the permission from the State Council, or cabinet, according to the Financial News, which is run by the central bank.

The announcement came amid growing indications that China wishes to create the conditions for a more powerful yuan on the global scene, reflected in a series of swap agreements with foreign governments.

The Chinese central bank governor earlier this year also created waves by suggesting in an essay that a replacement of the US dollar as the world\’s reserve currency was a possibility.

The bonds will give the banks a broader range of options when it comes to accessing yuan capital and support financial market development in the city, the report cited an unnamed central bank official as saying.

It is the first time foreign-invested commercial banks have won approval to sell yuan-denominated bonds, according to May Yan, an analyst with Nomura International in Hong Kong.

"For the Chinese government, there may be some considerations such as (the ability) to expand the use of the yuan outside China," she told AFP.

Meanwhile, "yuan funding is quite important to foreign-invested banks, whose ability to absorb yuan deposits is constrained due to their limited (number of) outlets on the mainland," she said.

Previously only the Asian Development Bank and International Finance Corporation have been allowed to sell yuan bonds, and only in China.

The two development organisations issued a total of 2.1 billion yuan (308 dollars) in debt in the Chinese interbank market in 2005.

Bank of China and four other Chinese lenders have also issued yuan-denominated bonds in Hong Kong since 2007, the Financial News said.


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