China’s Ministry of Finance and Hong Kong Exchanges and Clearing Limited (HKEx) has signed an agreement on the listing and trading of renminbi-denominated sovereign bonds in Hong Kong. The move marks another step in a series of liberalisations that have opened up the currency to international markets, and increasingly make the currency a viable option for corporates.
Renminbi-denominated sovereign bonds issued by the ministry can now list and trade on the HKEx – a move which comes after the previous week’s announcement that the ministry will issue a batch of RMB23 billion (US$3.6 billion) in sovereign bonds, forming the first Hong Kong issuance. Foreign central banks are already allowed to purchase onshore renminbi bonds using swap lines with the People’s Bank of China, but allowing the bonds to trade in Hong Kong is a strong signal of the government’s intention to internationalise.
China’s Ministry of Finance first launched RMB-denominated sovereign bonds to retail and institutional investors in Hong Kong in September 2009 but the RMB6 billion issuance was made available on a subscription basis, rather than being tradable on HKEx.
“Expanding into products related to fixed income, currency and commodities is a key aspect of our current strategy. Therefore, the listing of RMB-denominated sovereign bonds is an important step for us,” said Charles Li, chief executive, HKEx. Responding to emailed questions after the announcement, the HKEx commented that the sovereign bonds “will complement the RMB-traded products currently listed on the exchange,” noting this currently comprises 27 renminbi bonds, one renminbi Real Estate Investment Trust (REIT) and one renminbi exchange-traded fund (ETF).
HKEx also noted that the internationalisation of the renminbi was a key long-term objective for the mainland, resulting in the latest product development, adding that investor interest in and demand for renminbi products are a natural result of this internationalisation.
Speaking at the signing ceremony, Sun Xiaoxia, director-general of the ministry’s Finance Department said his office “continues to issue renminbi-denominated sovereign bonds in Hong Kong this year and has steadily increased the size of the issuance as a way to show the Central Government’s strong support for the economic development of Hong Kong.” She added that the move would strengthen financial cooperation between the mainland and Hong Kong, and help enhance the city’s bond market and status as an offshore-renminbi centre.
Further development is anticipated on a range of new renminbi instruments, expanding offshore market even more. The HKEx highlights that one of the key products coming in the near future is exchange-traded currency futures, settled in renminbi. The HKEx has received regulatory approval for this and is planning to introduce the instruments in Q3, subject to market readiness, it said. The contract will provide a way for investors to hedge renminbi exposure, and will be quoted in renminbi pre-US dollar, margined in renminbi, with the trading and settlement fees also charged in renminbi. Other initiatives afoot include developing better platforms to support renminbi-denominated trading, and efforts to “considerably” enlarge the HKEx’s derivatives product suite, including for renminbi instruments.
Reporting by Harry Thompson