Cross-border yuan trade settlement may exceed 1 trillion yuan this year, Mu Huaipeng, a senior advisor at Hong Kong Monetary Authority (HKMA), said at a forum on Friday.

Overseas enterprises' willingness to receive the Chinese currency is picking up due to rising expectations of yuan appreciation, according to Mu. Yuan trade settlement through the first six months of this year totaled 804 billion yuan, which comfortably more than doubled the 2010 total of 369.2 billion yuan.

"It will likely break 1 trillion yuan by the end of this year," said Mu.

That yuan trade settlement has continued to grow and the currency has strengthened against the US dollar in turn accounts for the quick build-up of yuan deposits in Hong Kong, Bank of Communications' (BOC) Chief Economist Lian Ping said at Friday's forum.

HKMA data also showed that yuan deposits in Hong Kong had reached 553.6 billion yuan by end-June, up from 315 billion yuan as of end-2010.

"I expect yuan deposits in Hong Kong to grow apace and reach 2 trillion yuan by the end of 2013," said Lian.

While encouraging the use of yuan products, the huge pool of yuan deposits in the city will also call forth a greater variety of yuan-denominated financial products. In that process, the yuan bond market is likely to see the most growth, HKMA's Mu and BOC's Lian agreed.

Investors have a lot to choose from. Apart from yuan bonds, there are now yuan funds, yuan-denominated insurance products and certificates of deposits denominated in the currency. A recent addition has been yuan-denominated shares after the listing of the Hui Xian REIT controlled by billionaire Li Ka-shing in what was the first ever yuan-denominated yuan IPO outside mainland China.

"For banks in Hong Kong, the yuan business has become a new growth driver," Mu observed. According to him, 12 banks had issued a total of 37.3 billion yuan-denominated certificates of deposits as of August 5.

However, the most momentum will lie with the yuan bond market, he reckoned. Just this week, the Ministry of Finance launched a roadshow for its 20 billion yuan bond offering in Hong Kong. Its last issuance of five billion yuan in dim sum bonds in November 2010 was nearly nine times oversubscribed.

A total of 42.7 billion yuan of dim sum bonds was issued during the first half of this year, already surpassing last year's total of 36 billion yuan.

"The yuan bond market is on the fast track for growth," Bank of Communications' Lian said. He expects an average of 80-90 billion yuan bond issuance each year from this point on. The offshore yuan bond market will be worth 250 billion yuan by the end of 2013, according to his estimate.

emmaan@chinadailyhk.com

China Daily

(HK Edition 08/13/2011 page2)