By Stepping Up to Sell China’s Bonds, Standard Chartered and HSBC May Accelerate the Yuan’s Acceptance as a Global Currency
By William Patalon III
Executive Editor
Money Morning/Money Map Report
Mainland China is continuing its push to transform the yuan into a globally accepted currency.
In May, China’s central government said it would permit locally incorporated foreign lenders to issue yuan bonds on the mainland. Now HSBC Holdings PLC (NYSE ADR: HBC) and Standard Chartered Bank are preparing to issue more than $500 million in yuan-denominated bonds – which would make them the first foreign banks to make such a move on the mainland.
[However, China did last month rule that HSBC and the Bank of East Asia Ltd. (OTC ADR: BKEAY) could issue yuan-denominated bonds in Hong Kong.]
The yuan is known officially as the renminbi – which translates as “people’s money” or “people’s currency” – and is often referred to in financial circles as the “RMB.”
China is employing three key strategies as part of a financial makeover that’s intended to transform it into a global economic superpower. Those strategies consist of:
- A push to make the yuan into a true international currency.
- A plan to develop the East Coast city of Shanghai into a global financial center over the next decade.
- And an initiative to enable publicly traded foreign firms to sell stock to China’s investors.
“By engaging in local RMB bond issuance, we hope to assist in elevating the RMB’s status as an international reserve currency," Standard Chartered Group Chief Executive Officer Peter A. Sands said in a statement.
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Money Morning Investment Director Keith Fitz-Gerald says this strategy could accelerate China’s evolution into a global economic superpower.
“I’ve [long said] that the day would come when [Chinese] companies were able to raise enough investment capital at home to finance their forays abroad, Fitz-Gerald wrote last week. “The day that occurred, I’ve said, is the day when the real fireworks would begin. Beijing [has] finally lit the fuse. By announcing the launch of a new market for dollar-denominated bonds that are issued by non-financial firms, China has now taken a major step toward modernizing its capital markets.”
Standard Chartered announced plans to raise as much as $512.5 million (3.5 billion yuan) by selling bonds in China’s so-called “interbank market” – a top-tier foreign-exchange market that enables a bank to trade one currency for another.
HSBC only announced its intent to sell the yuan-denominated bonds – but provided no dollar figure. Neither bank talked about the timing of the bond sales, which must first be approved by China’s regulatory agencies.
Both Standard Chartered and HSBC say their strategy is to support the continued development of Mainland China’s financial markets – although both banks were also careful to say that those markets were already well capitalized and extremely liquid.
For Standard Chartered, the sale of the yuan-denominated bonds may carry an added bonus – providing the funds the London-based lender needs to finance its already fast-paced expansion in China, where its business has been growing at an average annual rate of 80% for the past four years.
For China, the liberalized bond-sale rules could have the following benefits:
- For China-based companies that want to invest abroad – or that want to buy foreign companies, product lines, or other assets – these new bonds will make it possible to do these deals more easily, and at a much lower cost.
- Beijing had already launched an official campaign that urges “Corporate China” to acquire overseas companies and assets. But there had to be a liberalization of the financial system for this to happen. So back in August, in fact, for the first time in 11 years, China’s government eased rules governing its foreign-exchange systems.
- These new regulations permit companies to retain foreign-exchange income offshore, if they want, and thus helped pave the way for the new bond market because it stokes potential demand for dollar-denominated investments.
- And that comes at a perfect time for – up until now – the ongoing global financial crisis, which has made Chinese investors wary of buying foreign-currency bonds that were issued outside China. But these bonds will be created inside China, effectively short-circuiting that worry.
News and Related Story Links:
- Reuters:
HSBC, StanChart prepare to issue yuan bonds in China. - Wikipedia:
Interbank Market. - Money Morning Special Report:
How the New ‘Yuan Carry Trade’ Will Add to China’s Global Muscle, and Possibly Even Accelerate the U.S. Recovery. - Wikipedia:
Renminbi. - Reuters:
Peter A. Sands.
Comment by Jerry Evans on 6 June 2009:
We never invisioned anything like we are experiencing now. Perhaps if we were more mindful of the political arena we would have seen what was to come. Canada, Mexico and the US have an agreement in place already. We are now working with Cuba and not even paying attention to Venenzula. We are a country that enjoys and applauds investment, but forbide investing in foreign opportunities for our own citizens. It is very likely that those foreign investors from other countries will take our own founded companies back to their homeland and rename, redefine our faith in America. We need to pay attention to those who “pursue the American Dream” and look beyond the dollar signs and at their real intentions that are hidden underneath.
This article is exactly my point. How long have we been against communist and now it looks like they could be a major player in our own front yard. With Russian steadily comming along side them. Russia could reclaim Alaska, Canada could not only purchase large shares of General Motors, but whole states, Mexico could as well. Venezuela is very close to us and we, as American’s, are being blind sided by dollars and cents and with little hope in sight. A missle site was proposed by Russia to be built in Veneuzuela. Did we forget about it or did something just shift our minds to a whole different topic. Is Iran, North Korea, Cuba, more important topics. And, don’t forget we are suppose to be fighting a war in Iraq, Afganistan. But, we did have a war going on in Bosnia. What happened with that, did we shift to capture a countries Leader, hang him, just to make a political statement. Or did he actually do anyting different than what we did in the 1980’s with the drug cartel.
It rained already, and we need to stopped the flooding before it is absolutely too late for us to act. Look at Iraq, for example. We sold our own military equipment and weapons to them, just to let them use it against us when we were at “war” with them. Did we learn anything from that? Now, other countries are taking our own companies away from us, because we are hiring foreign company CEO’s, foreign, company Presidents, taking their “investors” money and hoping retire with a golden nestegg that use to be called a 401K plan.
I am not proposing mutiny. But, a different stand, such as the “Tax sit in” the “Boston Tea Party” , but all across america, would be a great start for all of us to show how sincere our actions are. The face of America is changing every day and we need to pay attention to those changes, not just for employment sake, but for the future of American so we will have a home to call home, a place to raise our children. We are not ready for “Star Trex” and the “USS Enterprise” just yet. Let’s take back our companie, stop international investors from taking our companies from under our noses, and rebuild and redefine ourselves as Americans and without other countries doing it for us.
Comment by Jerry Evans on 7 June 2009:
We never invisioned anything like we are experiencing now. Perhaps if we were more mindful of the political arena we would have seen what was to come. Canada, Mexico and the US have an agreement in place already. We are now working with Cuba and not even paying attention to Venenzula. We are a country that enjoys and applauds investment, but forbide investing in foreign opportunities for our own citizens. It is very likely that those foreign investors from other countries will take our own founded companies back to their homeland and rename, redefine our faith in America. We need to pay attention to those who “pursue the American Dream” and look beyond the dollar signs and at their real intentions that are hidden underneath.
This article is exactly my point. How long have we been against communist and now it looks like they could be a major player in our own front yard. With Russian steadily comming along side them. Russia could reclaim Alaska, Canada could not only purchase large shares of General Motors, but whole states, Mexico could as well. Venezuela is very close to us and we, as American’s, are being blind sided by dollars and cents and with little hope in sight. A missle site was proposed by Russia to be built in Veneuzuela. Did we forget about it or did something just shift our minds to a whole different topic. Is Iran, North Korea, Cuba, more important topics. And, don’t forget we are suppose to be fighting a war in Iraq, Afganistan. But, we did have a war going on in Bosnia. What happened with that, did we shift to capture a countries Leader, hang him, just to make a political statement. Or did he actually do anyting different than what we did in the 1980’s with the drug cartel.
It rained already, and we need to stopped the flooding before it is absolutely too late for us to act. Look at Iraq, for example. We sold our own military equipment and weapons to them, just to let them use it against us when we were at “war” with them. Did we learn anything from that? Now, other countries are taking our own companies away from us, because we are hiring foreign company CEO’s, foreign, company Presidents, taking their “investors” money and hoping retire with a golden nestegg that use to be called a 401K plan.
I am not proposing mutiny. But, a different stand, such as the “Tax sit in” the “Boston Tea Party” , but all across america, would be a great start for all of us to show how sincere our actions are. The face of America is changing every day and we need to pay attention to those changes, not just for employment sake, but for the future of American so we will have a home to call home, a place to raise our children. We are not ready for “Star Trex” and the “USS Enterprise” just yet. Let’s take back our companie, stop international investors from taking our companies from under our noses, and rebuild and redefine ourselves as Americans and without other countries doing it for us.
OH! You’re my new favorite blogger fyi