Bloomberg News

Yuan Offshore Markets May Pose Policy Threat, BIS Says

December 12, 2011

(Corrects McCauley’s title and location in third paragraph.)

Dec. 12 (Bloomberg) -- The yuan’s offshore markets could undermine government efforts to control credit markets to avoid asset bubbles, Bank for International Settlements said in a report released today.

Mainland companies are selling yuan-denominated bonds in offshore markets and access to those funds could “accelerate large Chinese firms” exiting from the domestic banking system, posing threats to the predominance of Chinese lenders, according to BIS.

“Eventually, banks will forge strong links between the offshore renminbi interbank market and its domestic counterpart, challenging monetary and credit control,” Robert McCauley, a senior adviser at BIS, wrote in the report. Easy repatriation of funds raised abroad and offshore loans priced below minimum regulated rates could pose threats to China’s policy, the Basel- based McCauley said.

Hong Kong is a major offshore yuan center for China. Vice Premier Li Keqiang pledged Chinese support for the city to fulfil that role during a visit in August. Singapore, London and New York are also vying to be offshore yuan trading centers.

Sales of yuan-denominated bonds in Hong Kong, more than half sold by Chinese companies, have jumped to 148 billion yuan ($23 billion) so far this year, compared with 36 billion yuan in the whole of 2010, according to data compiled by Bloomberg. The city’s yuan-denominated syndicated loans may reach 20 billion yuan to 30 billion yuan next year, Ming Pao Daily reported on Dec. 5, citing Wilson Wan, head of the leveraged and structured finance division at BOC International Holding Ltd. in Hong Kong.

“At this stage, border controls on renminbi inflows limit the impact of the offshore renminbi bond market on domestic bond market rationing,” McCauley said. “The more that offshore renminbi are given a passport to enter the mainland freely, the more prices in the offshore market will matter.”

--Editors: Andrew Janes, Sandy Hendry

To contact the reporter on this story: Fion Li in Hong Kong at fli59@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net


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