Chinese government bond sale oversubscribed
Updated
Chinese government bonds are red hot in the Hong Kong market at the moment, with the sale of nearly one billion US dollars worth of sovereign bonds has attracted great interest.
It's the first time Chinese bonds have been made available outside the mainland. Analysts say the sale is part of China's attempt to internationalise its currency, but it will be some time before RMB can play a major role in the global financial market.
Presenter: Lily Yan
Speakers: Fredrick Neumann, the Senior Asia Economist from HSBC Hong Kong; Kevin Lau, Economist at Standard Chartered Bank of Hong Kong
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YAN: There was almost a billion US dollars worth of bonds on offer, but such was the demand from Hong Kong investors, three billion dollars worth could have been sold.
Senior Asia Economist at HSBC, Fredrick Neumann, says he is not surprised.
NEUMANN: Because we have access to renminbi liquidity in Hong Kong currently, over 50 billion renminbi in Hong Kong account and deposit and Hong Kong savers are looking to invest these renminbi deposits in attractive assets.
YAN: Mr Neumann says, combined an interest rate of up to two and three quarter percent, it makes the investment a very attractive one.
NEUMANN: In Hong Kong, we are currently a very low interest rates and these bond offer a yield that is not necessarily available in other instruments within Hong Kong.
YAN: It's the first time the Chinese government has issued sovereign bonds in Chinese yuan, or CNY, outside the mainland.
Earlier this year, China's central bank called for a new global reserve currency to replace the US dollar. It says the financial crisis has shown the dangers of relying on one currency alone.
Kevin Lau , an economist from Standard Chartered Bank of Hong Kong, says the bond sale shows China is keen to promote its own currency in the international market.
LAU: It is a small step towards making the CNY more internationalised, so that is always their long term aspiration to increase the role played by the CNY within the global financial arena for China to eventually make these CNY become a more popular currency and eventually to become a reserved currency.
YAN: Mr Lau also says the popularity of the bonds shows confidence in China's stability and economic growth.
LAU: I am pretty sure we have the confidence of Hong Kong's investors towards the mainland government's ability to repay their debt, and judging by their ability to prop up the economy during the worst times during the crisis and the ability to mobilise money.
YAN: The peg of Chinese currency to the US dollar was only ended four years ago, one year before Hong Kong residents were allowed to open accounts in Chinese yuan.
Kevin Lau from Standard Chartered Bank, says Hong Kong is an ideal laboratory for the central government's financial experiment.
LAU: Infrastructure wise, Hong Kong is much more advanced in terms of conducting cross board clearance and settlements.
YAN: China's non-state banks have issued yuan-denominated bonds in the past. Fredrick Neumann from HSBC argues the sale of government bonds will encourage more private sectors to follow suit, and eventually create new markets.
NEUMANN: If you have a sovereign benchmark, then it makes it easier for private corporations to issue in such a market as well, because it is easier to price a private issue if you have a sovereign benchmark to price risk.
YAN: However, Mr Neumann says that the fact the government bonds are only available to Hong Kong residents at the moment shows just how cautious China is towards opening its currency market.
NEUMANN: China is keeping a tight reign on its capital controls currently, because the currency remains managed and therefore, the Chinese Government has to make only limited amount of assets available to the outside world. As I said, this might be a first step towards gradual capital account liberalisation, but it is not open to the rest of the world immediately.
