Coinciding in timely fashion with the start of President Xi’s state visit to the UK, China’s central bank has issued its first RMB denominated bonds outside of China and Hong Kong in London this week.
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.
Spencer Lake, global head of capital financing at HSBC, hailed the bond as a milestone in the accelerating internationalization of the renminbi. “This strategic move demonstrates the clear commitment by the Chinese authorities to grow the offshore bond market and the confidence in the City of London as a leading renminbi hub for future activities,” he said.
Tommy Xie, a Singapore-based economist at the Oversea-Chinese Banking Corp made similar observations. “This is another important step in yuan internationalization, which could help increase chances to win reserve status,” he said.
Chief Asia economist of Mizuho Securities, Shen Jianguang, drew attention to the significance of the fact that the UK was chosen ahead of other potential financial centers elsewhere in Europe and in the US. “A highlight of China-UK economic relations is London’s potential role as a top offshore renminbi centre in Europe. This will further strengthen London’s position as a predominant global financial center,” he said.
In recent years Britain has indeed tried to position itself as the main western trading hub for the yuan and London has led the way in offshore renminbi bond issuances, the first coming from HSBC in 2012 with the China Construction Bank and the Agricultural Bank of China the latest to do so in London just earlier this month.
The sale also further highlights the growing visibility of the yuan. Talking to Xinhua News recently, the general director of Bank of China in France, Pan Nuo, remembers, “In 2010, when we began to provide RMB financial products in France, some customers asked me questions like what is the difference between the RMB and the yuan…today, it would be incredible if someone still poses such a question.”
By Daniel Paul