The central bank has also helped foreign traders receive funds in yuan when it signed a total of 803.5 billion yuan for bilateral currency exchanges with South Korea, Hong Kong, Malaysia, Belarus, Indonesia, Argentina, Iceland, Singapore and other countries and regions.
The second method is to provide more yuan-denominated financial products to foreign investors, which includes issuing offshore yuan-denominated products in Hong Kong and further opening the yuan financial market to overseas investors.
The former is mainly about yuan bonds in Hong Kong and the latter is about opening the domestic inter-bank bond market to foreign investors.
The offshore yuan-denominated bonds are slowly gaining traction with multinationals and with the majority of Chinese operations. McDonald's, the fast-food chain, became the first United States issuer last August when it raised 200 millon yuan. Caterpillar, the US-based designer and manufacturer of machinery, later issued a 1-billion-yuan bond in November in Hong Kong.
According to statistics, as of the end of 2010, 43 offshore yuan-denominated bonds have been released in Hong Kong for 59 billion yuan. Only in 2010, the issuance of yuan-denominated bonds in Hong Kong amounted to as much as 30 billion yuan. According to estimates from HSBC Bank, that will increase to 80 billion yuan by 2011.
The foundation to support the rapid expansion of the yuan-denominated bond market in Hong Kong are the increasing yuan deposits in Hong Kong. Yuan deposits were only 63 billion yuan at the end of 2009. At the end of November 2010, this has soared to 280 billion yuan. According to Deutsche Bank estimates, at the end of 2013, yuan deposits in Hong Kong will reach 2 trillion yuan. Investors in Hong Kong will continue pursuing yuan-denominated bonds since interest rates are low and the yuan is expected to appreciate.
The rapid development of the offshore yuan bond market in Hong Kong will bring a win-win situation for both the mainland and Hong Kong. For the mainland, to develop offshore yuan financial markets, the government should regionalize the yuan. For Hong Kong, faced by the aggressive competition from Shanghai, it should develop an offshore yuan financial center to maintain its status as the international financial center.
The Chinese government should also continue to expand the use of "panda bonds", where foreign institutions and enterprises issue yuan bonds on the mainland. In the future, these bonds will be the dual engine that will internationalize the yuan.
The author is a scholar with the Chinese Academy of Social Sciences.
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