Yuan bond hopes hinge on mutual benefit: Tang
Leading business figures back move but financial secretary says getting Beijing's approval is 'an enormously difficult task'
The government has been negotiating with the mainland authorities about allowing Hong Kong-based institutions to issue yuan-denominated bonds.
Speaking at an economic summit yesterday, Financial Secretary Henry Tang Ying-yen said seeking approval for yuan bonds was 'an enormously difficult task' and hinted that the key lay in convincing Beijing of the scheme's mutually beneficial nature.
'It is very difficult because the yuan is not a globally circulating currency,' Mr Tang said. 'Even our discussion with the central government over the first phase of yuan business took a very long time. So for any further relaxation of yuan business in Hong Kong, we have to base our discussion on a mutually beneficial angle.'
Hong Kong banks began conducting four types of yuan service - deposit taking, credit cards, remittance and foreign exchange - at the end of February, after receiving permission from the China Banking Regulatory Commission (CBRC) last year.
The People's Bank of China says Hong Kong lenders had taken in about seven billion yuan in deposits by the end of last month.
Mr Tang expressed satisfaction with the progress on yuan banking, adding that Hong Kong could draw on that success as a blueprint for developing other yuan products.
The Hong Kong Association of Banks (HKAB) is planning to visit Beijing for talks with the CBRC on the introduction of the second phase of yuan banking, most likely to involve loans.
Several leading business figures yesterday backed the idea of yuan-denominated bonds in Hong Kong, although they all acknowledged the obstacles ahead.
Hongkong and Shanghai Banking Corp chairman David Eldon said the 'right environment' could be created by allowing the public to use yuan deposits in Hong Kong's banks to buy bonds.
Standard Chartered Bank director Peter Wong Tung-shun said additional preparation and research was necessary to aid the successful implementation of yuan-denominated bonds.
'We need different yuan-denominated products to complement bonds. This is something we have to work on with the mainland,' said Mr Wong, who is also chairman of the HKAB.
He cited higher yuan circulation in the city as a minimum requirement for the floating of yuan-denominated bonds but said full convertibility of the yuan might come earlier than previously thought.
JP Morgan fixed-income strategist Simon Klassen said he expected that firms issuing yuan bonds would have to remit the yuan back to the mainland - as do banks accepting yuan deposits.
Demand for the bonds could come from hedge funds or other institutional investors who wanted to have long yuan positions in the hope of a currency appreciation and Hong Kong firms with business in the mainland which did not want to leave their yuan receivables in the Chinese banking system.
'These bonds would give you access to Hong Kong companies as well as to Hong Kong courts in case something goes wrong,' Mr Klassen said.
Potential issuers would probably be limited to firms that had invested in China. Apart from cheaper rates, they would also avoid the currency risk, he said.
Mr Klassen also said the proposed bonds should benefit Beijing, which is struggling to get a rein on currency appreciation. People who want to invest in China now have to buy yuan first, adding to upward pressure on the currency.
