By Michelle Chen
HONG KONG, Nov 7 (Reuters) - As China prepares to promote
numerous free trade zones on the mainland to boost global use of
the Chinese currency, Hong Kong is launching new products to
keep its first mover advantage intact.
For more than four years, Beijing has leveraged on the
strengths of international law and transparency in the financial
powerhouse of Hong Kong to internationalise the yuan.
Now, for the first time, it hopes to duplicate the success
in the onshore market, sparking worries that the former British
colony may not receive the same favourable treatment from
Chinese authorities as it had in the past.
While bankers and analysts are confident that Hong Kong's
premier status will take a long time for any of the mainland
free trade zones (FTZs) to overtake, government officials strike
a cautious stance and look to extend cross-border ties further.
'It is most important for Hong Kong to continue to develop
its talent pool, enhance its market infrastructure and improve
its market quality for market development,' K.C. Chan, Hong Kong
Secretary for Financial Services and the Treasury, said in a
written response to a question in the legislative council about
the territory's role in light of the FTZs.
Financial Secretary John Tsang visited Beijing this week to
discuss offshore yuan development, with the aim of boosting Hong
Kong's yuan business and its status as an international
His visit assumes significance as Chinese policymakers will
hold an important meeting from Saturday to Tuesday, during which
a series of fresh reforms are expected to be addressed,
including the initiation of a number of FTZs in the country.
Tsang told reporters on Wednesday he had suggested that
Chinese regulators promote more financial products denominated
in yuan, such as cross-border reinsurance products sold by
Chinese insurance companies.
'I also suggested capitalising on Hong Kong's platform when
drafting the individual cross-border investment scheme, namely
QDII 2,' Tsang said.
In fact, more diversified yuan bonds have already made an
appearance in the past week in Hong Kong's burgeoning offshore
The so-called dim sum market saw not only the first issue
from a foreign regional government, but a debut of a
floating-rate bond with reference to the newly-launched CNH
Thailand property company Ananda also came to the market to
test the first perpetual dim sum bond, though the
sub-investment-grade issuer had to shelve its offering after
investors demanded higher yields.
The Shanghai free trade zone was launched in late September
and officials promise a far more open and streamlined
environment for foreign firms to do business there, along with
the relaxation of policies for a raft of service sectors.
Sources said Chinese leaders have been discussing the
adoption of an international legal system in the FTZs to help
lure foreign companies, although views are varied.
Market watchers believe its impact on Hong Kong's offshore
yuan business depends on how and to what extent Beijing is
willing to cede controls in the FTZs and to allow fund flows
between free trade accounts and onshore accounts.
'I heard the free trade accounts will be very liberalised
which means almost no restriction is there for fund movements
between onshore and offshore accounts within Shanghai free trade
zone,' said an analyst in Hong Kong.
Seven banks and seven companies have been chosen to test
free trade accounts and there will be no interventions on fund
movements among different accounts in the FTZ, Chinese local
media group Caixin reported last week citing an unnamed source.
WEEK IN REVIEW:
* China Finance Ministry is set to issue 10 billion yuan of
government bonds in Hong Kong on Nov. 21, of which the 3 billion
yuan 2-year tenor tranche will be issued to Hong Kong residents,
the 5 billion yuan 3-year and 2 billion yuan 5-year tranches
will be issued to institutional investors.
* China Development Bank returns to the offshore
yuan debt market and manages to sell its 4.5 billion yuan bonds
with three tranches. It is part of a fresh batch of quotas
granted by the National Development and Reform Commission (NDRC)
to mainland issuers to tap the dim sum market.
* The Canadian province of British Columbia completed the
sale of a 2.5 billion yuan one-year dim sum bond on Friday, with
central banks taking the lion's share of the offering.
* Yuan deposits in Hong Kong rose to 730 billion yuan in
September, up 2.9 percent from a month earlier, the Hong Kong
Monetary Authority said on Thursday. Cross-border trade settled
in yuan increased 9 percent to 331.7 billion yuan on a
* Taiwan will allow Chinese companies to issue yuan bonds
there by the end of this year, with China Development Bank (CDB)
expected to issue the first such bonds, a local newspaper
reported on Thursday, citing Taiwan's top financial regulator
CHART OF THE WEEK:
Hong Kong's yuan deposits and trade settlement: http://link.reuters.com/wur44v
CNH Tracker-Dim sum bond issuance set for active December
China eyes adopting international law to spark life into trade
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
(Editing by Kim Coghill)
Keywords: MARKETS OFFSHORE/YUAN
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