Biting into offshore renminbi bonds

February 7, 2012

McDonalds, Volkswagen, Tesco — they are just a few of the Western companies which have issued offshore bonds denominated in China’s currency, the renminbi, in the past year or so.

The “dim sum” bond market has expanded rapidly in a short space of time, helped by the desire of international companies to get access to funds in an otherwise restricted currency. And why wouldn’t you — China is the world’s second largest economy, its currency is on an appreciation trend — even if slower than the U.S. would like — and growth prospects are still close to double digits, while plenty of Western economies are trying to fight off those minus numbers in their economic data.

China is continuing to open up its offshore renminbi bond market, and London is trying to get in on the act.

Britain’s Treasury said last month, during a trip to China and Japan by Chancellor George Osborne, that the UK government was aiming to complement Hong Kong as a major offshore centre for the renminbi.

More than 100 delegates at a conference in London today turned their backs on the rival attractions of discussions on  other BRIC members Brazil and India to listen to a panel on the offshore RMB market.

Senior Chinese Communist party official Yin Yanlin even made a rare overseas public appearance to support the market’s cause, saying:

There’s scope for substantial expansion of the RMB market…Development of offshore RMB centres will play an important role in the reform and development of the financial industry.

The panel told us how the market has grown to 180 billion yuan ($29 billion) in little more than two years, following the launch of the first Chinese sovereign bond as recently as Sept 2009.

But the snag is that without a flexible and convertible currency, this will not be much of a tradeable market, as liquidity will be hard to find. And London may struggle to grab a slice of that pie.

As Adam Tyrrell, head of capital markets at Standard Chartered said at the panel:

Most of the trade in CNH (offshore yuan) is through Hong Kong, that’s a challenge for any further international RMB centre to overcome.

 

 

 

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