The central government yesterday gave the approval for mainland lenders to
issue renminbi bonds in Hong Kong, marking a breakthrough in its currency
polices and paving the way for a fully-convertible yuan.
The mainland has
thus opened up the capital account in an overseas center for the first time
after it did so on the current account a few years ago.
The capital
account tracks the movement of funds for investments and loans in an economy,
while the current account tracks flows of transactions such as in goods,
services and interest payments.
At a press conference, Hong Kong
Financial Secretary Henry Tang said the special administrative region (SAR)
would discuss details next week with the People's Bank of China, the mainland's
central bank.
The central government is also studying whether to allow
the use of the yuan to settle payments for mainland exports to Hong Kong, he
said, adding no timetable has been set.
Hong Kong Chief Executive Donald
Tsang welcomed the move. "This new category of renminbi business is conducive to
business opportunities for banks and enhancing financial flows between Hong Kong
and the mainland," he said.
Local economists forecast more openings and a
greater role for Hong Kong in the reform of the country's foreign exchange
regime.
"The RMB bond issue is a significant opening of yuan-denominated
services," said Frances Cheung, an economist with Standard Chartered Bank. "We
foresee more openings in the future."
Some even predict the central
government may soon allow the yuan to be fully convertible in the city on a
pilot basis.
Hong Kong is seen as a test ground for the mainland to
exercise greater flexibility in its foreign exchange regime and offshore yuan
businesses. The SAR has become a proxy for foreign investors to bet on yuan
appreciation.
Four types of yuan businesses deposit, withdrawal, exchange
and remittance have been allowed in the SAR from February 2004. By November, a
total of 22.6 billion yuan ($2.89 billion) was held by 40 Hong Kong banks as
deposit.
The deregulation will definitely benefit mainland banks, which
offers them a new fund-raising channel apart from listing and retail banking,
economists said.
Three policy banks China Development Bank, The
Import-Export Bank of China and Agricultural Development Bank of China could be
the first batch of financial houses to be allowed to conduct the business, said
an analyst who declined to be named. "Mainland commercial banks have various
ways to tap Hong Kong's equity market," he told China Daily. "It is policy banks
that urgently need fund-raising channels," he added.
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