By Michelle Chen
HONG KONG, Oct 24 (Reuters) - As China makes important
strides to expand the yuan's footprint beyond Hong Kong, more
favorable policies are expected to breathe fresh life into the
moribund offshore yuan bond market in the former British colony.
Of particular note is the primary market's new sales, which
have come to a shuddering halt after the summer even as the $80
billion so-called 'dim sum' debt market eked out steady gains
for three straight months since July.
That is in contrast to a flurry of Chinese names that made a
beeline into the dollar bond market which has seen a rebound in
activity as the U.S. Federal Reserve delayed its plans to start
winding back its stimulus.
Bankers believe a long-awaited new batch of quotas which
allows Chinese issuers to sell dim sum bonds will be granted
soon to activate the market. The total size may climb to 75
billion yuan ($12.33 billion), up 50 percent from the first
State-owned enterprises (SOEs) controlled by local
governments are also likely to be permitted to issue yuan bonds
in Hong Kong, in addition to those owned by China's central
The world's second-largest economy is sparing no effort to
promote the wider use of its currency as it aims to advance its
status on par with the dollar. The yuan now ranks as the eighth
most traded currency in the world, according to SWIFT.
Beijing extended its prized offshore yuan investment scheme
to Singapore and allowed direct currency trading between the
yuan and Singapore dollar on Tuesday, following a similar
package bestowed to London last week.
'The Chinese government will implement soon, initiatives
that will expand the dim sum bond pilot scheme, to enable more
China-based issuers to issue dim sum bonds directly,' says Ivan
Chung, a Moody's senior credit officer.
For now, foreign companies and overseas subsidiaries of
Chinese firms can sell dim sum bonds without any restriction,
while mainland issuers still need to obtain approvals from the
National Development and Reform Commission (NDRC).
Dim sum bond sales stood at 4.7 billion yuan in September,
much lower than the monthly average of 12.7 billion yuan in the
first half of this year, according to statistics from Bank of
The tiny size of the dim sum market raises potential
roadblocks for Beijing's drive to internationalize its currency
as a lack of investible assets limits the growth of
international trade settled in yuan.
Ratings agency Fitch estimates the size of the dim sum bond
market remains less than 2 percent of the local Chinese bond
market and 2013 may see a decline in bond issuance by
non-financial companies compared to 2012.
The NDRC approved quotas totaling 50 billion yuan to 10
Chinese banks and five SOEs owned by China's central government
last year to diversify issuers and spur market development.
However, as funding cost has been on the rise in the
offshore market and big SOEs lack no channels to raise money
onshore, their appetite to tap dim sums is dampened. For
example, among the five SOEs, only Baosteel used up its 6.5
billion yuan quota.
'It makes the NDRC a bit embarrassed and that is one reason
why there are talks that provincial SOEs which have fewer
funding channels will be added to the program this time,' said a
DCM banker in Hong Kong.
Another banker with a Chinese bank said that Jinchuan Group,
which is under Gansu provincial government, is interested in
selling dim sum bonds if it gets the green light from the
WEEK IN REVIEW:
* Chinese asset manager E Fund Management (Hong Kong)
launched its CES China 120 Index exchange traded fund (ETF) on
Monday. It is the first cross-market RQFII ETF concurrently
tracing A-shares, H-shares and mainland China's private
* Taiwan's First Bank, a subsidiary of First Financial
Holding, said on Tuesday it had been allowed to issue
3 billion yuan Bao Dao bond (yuan bond sold in Taiwan). The bank
will sell the first batch of 1 billion yuan bond this year.
* Hang Seng Bank said on Friday it had received approval
from the Shanghai Office of the China Banking Regulatory
Commission to establish a sub-branch in the China (Shanghai)
Pilot Free Trade Zone, following Citibank and DBS which were
CHART OF THE WEEK:
Dim sum bond market remains subdued after the summer lull: http://link.reuters.com/fyn93v
CNH Tracker - As London aspires to larger yuan role, Hong Kong
only cements its lead
More stories about the CNH market
Daily onshore yuan reports
Daily China money market reports
Offshore yuan rate Onshore yuan rate
Offshore yuan dealt Onshore yuan on CFETS
THOMSON REUTERS SPEED GUIDES
($1 = 6.0835 Chinese yuan)
(Editing by Shri Navaratnam)
Keywords: MARKETS OFFSHORE/YUAN
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