Bank of China launched an RMB Bond Trading Index simultaneously in Shanghai, Singapore and London as well as a yuan trading center in London on Tuesday, Reuters reported, citing bank chairman Tian Guoli.
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In a major deal for China-UK economic relations, the 5 billion yuan one-year bills issued by the People’s Bank of China (PBOC) attracted bids of more than RMB30bn ($4.7bn), and the resounding success of the auction has led to speculation that China’s finance ministry will announce a second longer-dated bond in due course. “United Kingdom service sector exports such as financial services, worldwide tourism and education are likely to be among the fastest-growing market opportunities, as the rapidly growing household incomes of the Chinese middle class allow a higher share of total disposable income to be spent on services-related expenditure”, says Rajiv Biswas, Asia Pacific chief economist for IHS Global Insight.
“Given there has been some uncertainty over macro China in the past few months and offshore issuance has been light, it’s great to see such a significant print”, he said, adding the bank stuck to its usual one-year tenor rather than issuing three-year maturity more common for dim sum bonds, which are sold outside China but denominated in yuan.
The deal, marked by a lunch in London, coincided with President Xi Jinping’s first state visit to the United Kingdom, the report said.
The British, meanwhile, want to cement London’s status as a financial hub – a strategy that is seeing the United Kingdom compete with Germany and other powers for influence in China.
That month, foreign investors pulled $US1.78 billion from offshore yuan bond funds, the largest amount of such outflows on record, according to data compiled by fund-research firm Morningstar Inc.
Asian investors took 51 percent of the bonds. The proposed debt sales in London come at a time when yields in the onshore market are declining, with the coupon on 10-year bonds having fallen below 3 percent at an auction for the first time since 2008.
The People’s Bank of China (PBOC)conducted a net drain of 70 billion yuan from the banking system last week.
In response, China’s central bank spent an estimated 0 billion in July, August and September to support the currency, which contradicts Beijing’s stated aim of letting market forces play a bigger role in determining its value. The proceeds from the bonds will be used by ABC for lending to support environmental protection, energy conservation and greenhouse gas emission reduction, and to fund eligible green projects. Most European Central Banks followed, or will follow, as indeed corporate lenders. Since June, when China’s stock market began to crash, such allocation has increased to more than 50 per cent.
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Moreover, Mr Tinker said the bond connect plans – the development of trading infrastructure to connect the Hong Kong and Shenzhen market – are now being given a higher priority, with infrastructure possibly in place within six months.
