Foreign agencies to issue renminbi bonds
China's authorities issued tentative rules yesterday to allow international development agencies to issue renminbi bonds in the domestic market.
The promulgation of the rules, which take immediate effect, is part of a major effort by the authorities to usher in international financial institutions to help develop local bond markets, marking a key loosening in the convertibility of the local currency.
According to the new regulation, jointly promulgated by the central People's Bank of China, the Ministry of Finance, the National Development and Reform Commission and the China Securities Regulatory Commission, international development institutions that have more than US$1 billion in loans and equity investment in China and an AA upward renminbi bond credit rating are qualified to issue renminbi bonds in China.
But they are required to use the proceeds within China.
The central bank said yesterday it will choose one or two issuers for pilot issuances before more institutions are permitted to follow suit.
But earlier reports said the authorities were considering bond issuances by the the International Finance Corp, the Asian Development Bank, and the Japan Bank for International Co-operation, totalling a combined 4 billion yuan (US$480 million).
The move brings in a new type of issuer in the domestic bond market and, "to some extent, helps promote the development of the bond market," said a central bank statement.
The Chinese currency is now partly convertible under the capital account, but no foreign institution has been allowed to issue bonds in China.
The future issuers will be required to set up a special renminbi account and are subject to foreign exchange supervision by the Chinese authorities.
Zhao Xijun, vice-director of Finance and Securities Institute at Renmin University of China, said allowing international issuers into the local currency bond market will help accelerate the internationalization of the renminbi and enhance its influence in regional trade.
The renminbi is already being widely used in neighbouring regions despite its partial convertibility, even serving as a settlement currency in regional trade.
The renminbi's role as a regional settlement currency benefits all parties concerned, but will require greater convertibility under the capital account, Zhao said.
"And allowing development agencies to issue renminbi bonds is a good way to accelerate progress," he said.
The move also spares the development agencies the trouble of currency conversion and exchange rate risks, and will help them better manage their projects in China, the scholar said.
But Zhao said the loosening does little to reduce the amount of forex inflows, since the development agencies have been cutting their lending to China as a result of its economic success.
Expectations of a renminbi revaluation have fuelled forex inflows into China
in the past few years, complicating its monetary authorities' effort to curb
local money supply while maintaining the currency's narrow floating