(Updates to add details, background, analyst reaction)
* China says yuan bond issue to be benchmark for more in HK
* Analysts see it as crucial to creating offshore yuan market
By Zhou Xin and Simon Rabinovitch
BEIJING, Sept 8 China's finance ministry will
issue 6 billion yuan ($878 million) in yuan-denominated bonds in
Hong Kong, its first such issue and a key step in the gradual
internationalisation of the Chinese currency.
The finance ministry said in a statement on its website on
Tuesday that the bond issue, scheduled for Sept 28, would provide
a pricing benchmark for other yuan bonds issued in Hong Kong,
encouraging Chinese firms to raise funds in the territory's debt
Beijing's first-ever sovereign issuance in Hong Kong is a
drop in the ocean compared to its planned 950 billion yuan ($139
billion) of treasury bonds this year, but it is significant for
"The issuance marks a very important step in
internationalising the yuan by establishing a benchmark yield
curve in Hong Kong to create an offshore yuan market for pricing
yuan interest rates," said Shi Lei, an analyst at Bank of China
The move is also crucial to China's slow and carefully
managed transformation of the yuan, also known as the renminbi,
into a currency widely used beyond its borders.
China has made little secret of its plan to make Hong Kong
the main offshore centre for yuan trading. Premier Wen Jiabao
said in April that the finance ministry would consider issuing
bonds there to spur the development of the yuan debt market.
"The government's Hong Kong yuan bond issue is the latest
sign of its intention to internationalise the yuan," said Haitong
Securities chief economist Chen Lu in Shanghai.
"But the move to make the yuan into a regional currency and
then an international currency will take a long time, years at
Five state-owned Chinese banks, including Bank of China and
China Construction Bank, have issued yuan bonds in Hong Kong
since 2007, when the government began allowing such deals.
Earlier this year, HSBC became the first foreign bank to
issue yuan bonds in Hong Kong.
China has also launched a pilot programme, centred on Hong
Kong, for companies to settle trade in yuan. The largest of
China's bilateral currency swaps introduced over the past year
was its 200 billion yuan agreement with Hong Kong.
"They have always encouraged issuance of yuan bonds here in
Hong Kong. It also signifies government support for Hong Kong as
the offshore renminbi centre," Zhi Ming Zhang, an HSBC analyst in
The Standard, an English-language newspaper in Hong Kong,
reported earlier on Tuesday that China's Ministry of Finance was
planning to issue yuan-denominated bonds in Hong Kong to raise as
much as 100 billion yuan ($14.64 billion).
The Standard said Bank of China (Hong Kong) (2388.HK) had
been designated as the clearing bank.
(Additional reporting by Umesh Desai in Hong Kong, Karen
Yeung and Lu Jianxin in Shanghai; Editing by Ken Wills)