Beijing's decision to allow the use of the yuan in foreign direct investment (FDI) is expected to herald a new era in the internationalisation of the currency.
Even the current market volatility is not expected to have a big impact on companies issuing more yuan-denominated bonds and shares as investors bet on the ongoing appreciation of the currency.
The liberalisation of the yuan, one of 30 measures announced by Vice-Premier Li Keqiang during his three-day visit to the city earlier this month, means that from as early as September, foreign companies will be allowed to invest their yuan holdings directly into mainland projects.
That will help reduce currency risks for companies, as their projects are on the mainland, and it makes sense for them to use the yuan instead of the US dollar. The measures are also aimed at boosting yuan trading in Hong Kong.
Foreign companies last year pumped in US$105.7 billion worth of FDI to the mainland, 57.3 per cent of it from Hong Kong. Now that companies can use the yuan to invest directly on the mainland, more are expected to issue 'dim sum' bonds - yuan-denominated bonds issued in Hong Kong - or yuan-denominated initial public offerings and share placements.
Joseph Tong Tang, executive director of Sun Hung Kai Financial, said companies had been reluctant to issue yuan-denominated bonds or shares as the mainland's capital controls mean they were unsure if they could repatriate money back to the mainland.