China central bank to sell short-term debt in London
George Osborne and Ma Kai witness the signing of an agreement during the seventh China-UK strategic economic dialogue at Diaoyutai State Guesthouse in Beijing on Monday. - AP
Hong Kong - The debt issuance will be the first sale of such notes outside of China and help develop London as a yuan trading hub.
Officials will study the feasibility of setting up a London-Shanghai stock trading link and China's central bank will issue short-term yuan-denominated bonds in the UK for the first time.
The debt issuance will be the first sale of such notes outside of China and help develop London as a yuan trading hub, UK Chancellor of the Exchequer George Osborne said at a briefing in Beijing on Monday, after concluding discussions with China Vice Premier Ma Kai.
The study on the equity link will be discussed by the next round of the annual talks, he said.
A stock link would "logistically" be "very difficult," said Benedict Cheng, a Hong Kong-based managing consultant at capital markets adviser GreySpark Partners. The study will need to overcome obstacles, including different time zones, arrangements between brokers and clearing banks, and which currency trades will be settled in, he said.
The Hong Kong-Shanghai exchange link, which began last year, was hailed as a major step in China allowing more foreign access to the world's second-biggest equity market.
The Shanghai Composite Index soared 108 per cent from the programme's November 17 start through the equity measure's June peak.
The gauge has slumped 39 per cent since as local traders unwound margin debt and the outlook for the economy dimmed.
It's a "natural development," said Joakim Axelsson, chief operating officer for global trading and execution at CLSA Ltd. "Anywhere where you have large offshore yuan centres, they will be looking to explore a Connect. The biggest offshore yuan centres are Hong Kong, Singapore, London and New York."
More than half of the 300 billion yuan ($47 billion) quota for foreigners to buy mainland stocks remains unfilled, while Chinese investors have used the programme to put 89.2 billion yuan into the Hong Kong market, according to bourse data.
China will expand a yuan-denominated investment limit for the UK based on market demand, according to the statement.
In 2013, the UK was awarded an 80 billion-yuan quota under the Renminbi Qualified Institutional Investor programme, which allows yuan raised offshore to buy securities in China's domestic markets.
Some 21 billion yuan of quotas had been allocated to asset managers in the UK as of August 28, according to State Administration of Foreign Exchange data.
"It's in our interests that we have deeper and more mature financial markets across the world," Osborne said. "That doesn't mean of course we're going to be immune as a world from financial shocks."
The proposed bond sale by the central bank comes as the finance ministry plans weekly auctions of three-month debt from next quarter to bolster the case for the yuan to win reserve-currency status at the International Monetary Fund.
China opened its interbank bond and currency markets to foreign central banks this year to encourage them to park more of their foreign exchange reserves in yuan-denominated assets as it promotes increased global usage of the currency.
The Ministry of Finance has been selling yuan-denominated sovereign bonds in Hong Kong since 2009, with a minimum tenor of two years.
Britain's Chancellor of the Exchequer George Osborne, center left, and Chinese Vice President Ma Kai, center right, applause as they witness a signing ceremony of the 7th China-UK strategic economic dialogue "Roundtable on Public-Private Partnerships" at Diaoyutai State Guesthouse Monday, Sept. 21, 2015 in Beijing. (AP Photo/Andy Wong, Pool)