A pedestrian walks past a local bank which advertises its renminbi (RMB) services in Hong Kong yesterday. The central government said earlier this month the Ministry of Finance may issue RMB-denominated treasury bonds in the city through local banks. CNS

HONG KONG: The central government will soon issue renminbi bonds in Hong Kong to bolster the territory's status as an international financial center, Secretary for Financial Services and the Treasury KC Chan said yesterday.

Speaking at a forum on renminbi-denominated trade settlements, Chan said the central government is now considering issuing renminbi bonds in Hong Kong through the Ministry of Finance. This move will help add variety to available currencies currently in use by issuers in the local bond market, he said.

"Hong Kong has finished all the preparatory works and tests on a yuan clearing system, while the People's Bank of China is also coordinating with different mainland departments on the details of managing and arranging trade settlements," Chan said.

"The scheme can start to operate, once it is approved by the central government," he added.

Chan said cross-boundary trade, conducted in yuan, will improve the liquidity of renminbi in Hong Kong, while also providing a platform for expanding the yuan business among local banks.

Peter Wong, chairman of the Hong Kong Association of Banks (HKAB) and executive director of HSBC's Asia Pacific unit, said the circulation of yuan should be further enhanced as the mainland looks set to overtake Japan next year or in 2011 for having the world's second largest economy.

"Hong Kong currently has some 55 billion yuan in its banking system and this is very limited," Wong said, "The amount of renminbi currently in circulation in Hong Kong has to increase."

He said some HK$280 billion worth of import and export trade was conducted last year between Hong Kong and the mainland, representing about 10 percent of the city's total volume of exports and imports last year.

The current reserves of yuan in Hong Kong is therefore insufficient to provide a strong support to cross-border trade, he said.

He said allowing cross-border trade to be settled in yuan will be an important step in reducing the risk arising from the fluctuation in foreign exchange rates.

Settlement of cross-border trades in yuan will also strengthen Hong Kong's stature as an international financial center, he said.

Stanley Wong, executive director at ICBC (Asia), said the breadth and depth of available yuan-related products have to be expanded over time to cope with rising demand for hedging of exposure to the renminbi.

"If renminbi becomes fully convertible by 2020, its stature in the international financial market will certainly be boosted," Wong said.

"Hong Kong should use the next 10 years to expand substantially available yuan-denominated assets in the city," he said.

Wong also said Hong Kong needs to work hard continuously, since Shanghai is fast emerging as an alternative international financial center in the region.

"It is very likely that renminbi will become an important foreign reserve currency and this will pose a major challenge and pressure to Hong Kong," he added.

(HK Edition 04/29/2009 page16)