Boom time for the offshore RMB bond market
The offshore renminbi (RMB) bond market, seen as a cornerstone in Beijing’s policy of progressively internationalising its currency, looks set to hit a new record for issuance this year.
The initial focus of the internationalisation process was on trade rather than investment and it has not taken the world long to adopt the RMB as a trading currency. Corporates trading with China have been quick to recognise the likelihood of getting better prices when paying in RMB while overseas corporates are increasingly accepting RMB as payment for their exports to China.
Fertile ground for an offshore RMB bond market
Together with a surge in corporate demand for RMB, this has stimulated a build-up in RMB deposits in Hong Kong and Taiwan. The expanding pool of offshore currency has proved fertile ground for the development of an offshore RMB bond market and is greatly benefiting China’s banks who have been pleased to exploit the capital-raising opportunities. Faced with tighter monetary conditions on the mainland for the early part of this year, they have become keen issuers in Hong Kong, Taiwan and now Singapore.
London has also got in on the act with Industrial and Commercial Bank of China (ICBC) opening the primary market with a heavily oversubscribed bond in November 2013 and Bank of China setting a new record for an offshore RMB bond in London in January. And the UK government became the first western country to announce it would issue a government bond in RMB.
New repo market in offshore RMB securities
The development of a proper repo market in offshore RMB securities is seen as another important step. The global market of offshore RMB securities is now topping RMB800bn ($128bn) and participants are actively looking at this pool of securities to help them meet the increasing regulatory pressure to collateralise transactions.