China says it will issue six billion yuan (880 million dollars) in government bonds in Hong Kong later this month, marking the first such sale outside the mainland.
The bonds, to be launched on September 28, will "improve the international status of the yuan" and "provide a pricing benchmark for mainland institutions' yuan-denominated bond sales in Hong Kong," the finance ministry said.
The move will facilitate yuan settlements in neighbouring countries and regions, the ministry said in a statement, as China moves to realise its goal of making the yuan an international currency.
The sovereign bonds will also "help consolidate Hong Kong's role as an international financial centre" and "encourage more mainland institutions to issue yuan-denominated bonds" in the former British colony, it added.
A spokesman for the Hong Kong government hailed the issue of the bonds as a new milestone for the development of yuan business in the southern Chinese territory.
It "clearly demonstrates the central government's support for Hong Kong as an international financial centre", the spokesman said.
The bonds will be offered to both individual and institutional investors and the specifics of the issuance will be decided "according to market rules", the Chinese finance ministry said.
Analysts argued that Beijing was not targeting financial returns on the issue of the bonds, but rather the creation of a more powerful yuan on the global scene.
"The aim is ultimately internationalisation of the yuan and Hong Kong is a laboratory for that," he said.
"A yuan-denominated bond issue would help corporates eventually issue yuan-denominated bonds and it would encourage the growth of yuan-denominated investment products in Hong Kong."
"I think the appetite will be strong as there's not much supply," Wang said. "Sovereign bonds are risk-free so you should not expect a high yield."
"The sovereign bond market is a very important first step to developing a corporate bond market. Corporate bonds will be priced against that (sovereign) benchmark at a discount or premium," he added.
Bank of China and four other Chinese lenders have also issued yuan-denominated bonds in Hong Kong since 2007, according to previous media reports.
Source: AFP Asian Edition