Bank of China

Beijing to foster HK-Shenzhen ties

PUBLISHED : Friday, 29 June, 2012, 12:00am
UPDATED : Friday, 29 June, 2012, 12:00am

China is poised to announce measures promoting the integration of Hong Kong and Shenzhen, after issuing its fourth and largest batch of sovereign bonds in Hong Kong yesterday.

A mainland official said Beijing would soon announce policies to strengthen ties between Hong Kong and Shenzhen's US$45 billion Qianhai Bay Economic Zone.

One of the policies could include a test zone for the yuan's free convertibility in Qianhai.

The moves come as part of a show of support to mark the 15th anniversary of the handover. President Hu Jintao arrives today to join in the celebrations.

Beijing issued 23 billion yuan of sovereign bonds in Hong Kong yesterday.

For the first time, Beijing dedicated 2 billion yuan of the bonds to overseas central banks and monetary authorities.

Linan Liu, a rates strategist with Deutsche Bank, said Beijing's move to use the Hong Kong Monetary Authority as a channel for offering bonds to central banks would help confirm the city as an offshore yuan trading centre.

Overseas central banks can access the mainland onshore interbank bond market with the approval of the People's Bank of China. But Liu said their participation in the offshore yuan fixed-income market had been quite low. Five central banks tendered for the bonds.

The banks weren't named, but sources said they were from regions spanning Asia to Africa, probably from areas that had close trade relations with the mainland and could benefit from holding yuan in reserve.

They bid for 3.06 billion yuan, substantially higher than the 2 billion yuan offered to overseas central banks, Deputy Finance Minister Li Yong said.

Some other unnamed central banks joined the bid by tendering through institutional tranches, people familiar with the matter said.

The yield on the three to 15-year bonds ranged from 1.38 per cent to 3.1 per cent.

A Thailand central bank official had said the country was interested in buying Chinese sovereign bonds offered in Hong Kong.

But media reports in India have said that its central bank still has concerns.

Some central banks in emerging markets with close ties to the mainland will find the bond investments useful. But widespread use of yuan bonds by major central banks is unlikely until Beijing makes its currency fully convertible.

'The issuance of yuan sovereign bonds in Hong Kong again will bring about mutual benefits and a win-win situation to both the mainland and Hong Kong,' Chief Executive Donald Tsang said.

All told, 15.5 billion yuan worth of bonds were sold to institutional investors.

Li said the institutional subscription was about 58.6 billion yuan, more than three times as much as the issuance size.

Individual investors were offered 5.5 billion yuan worth of bonds, with a two-year tenor and an annual interest rate of 2.38 per cent.

China issued 6 billion yuan of yuan-denominated treasury bonds in Hong Kong in 2009, then 8 billion yuan in 2010 and 20 billion yuan last year.

The offshore yuan bond market was launched in 2007 when China permitted mainland-based financial institutions to issue yuan bonds in Hong Kong.

As of April this year, the total amount of yuan bonds issued in Hong Kong was 218.4 billion yuan, according to the HKMA.