China moves closer to offshore yuan market
More discussion of the yuan’s growth.
China moves closer to offshore yuan market
By Yang Zhen (China Daily)
Updated: 2009-05-20 08:12
Allowing overseas banks to sell yuan bonds in Hong Kong has moved China one step closer to building an offshore yuan market, analysts said.
HSBC and Bank of East Asia confirmed yesterday that their China units had won approval from Chinese regulators to become the first overseas banks to sell yuan bonds in Hong Kong.
"I would like to see more overseas companies generally issue bonds in China as a way to raise finance, as this would help promote the internationalization of the yuan and ease liquidity problems in the developed world," said Ben Simpfendorfer, chief China economist at the Royal Bank of Scotland in Hong Kong.
HSBC believed its yuan bonds issue would help establish a representative pricing benchmark for foreign banks requiring funding and also boost the development of Hong Kong’s offshore yuan market, said Richard Yorke, president and CEO of HSBC China, in an e-mail statement yesterday.
Bank of East Asia also received approval and is preparing to arrange yuan bonds in the city, the bank’s spokeswoman Salina Tong was quoted by Bloomberg as saying yesterday.
Both banks said they still didn’t have specific plans on the quantum of yuan bonds they were planning to issue.
China has been promoting greater use of the yuan for trade and investment as an effort to shield the country’s export-oriented economy from the impact of exchange rate fluctuations.
The central government unveiled a pilot project on April 8 to allow international trade settled in the yuan in Shanghai and four cities in Guangdong, the southern province bordering Hong Kong.
At the same time, Hong Kong also aims to establish itself as an offshore yuan finance center to help protect itself from the fallout from the global credit crisis. Premier Wen Jiabao met with Hong Kong Chief Executive Donald Tsang in April and promised to help the city.
Hong Kong banks have been able to accept yuan deposits since 2004 and stores have increasingly welcomed payment in the yuan since 2003.
However, according to Joseph Yam from the Hong Kong Monetary Authority (HKMA), the region’s central bank, the yuan deposits in Hong Kong banks are deposited with the People’s Bank of China, through the yuan clearing bank in Hong Kong.
Yuan bonds sale by foreign banks will offer Hong Kong banks a new option for their yuan deposits. "As the Hong Kong yuan market is still in its infancy, the decision is an important step toward spurring its development," said Simpfendorfer.
Five Chinese banks, including Bank of China, China Construction Bank and China Development Bank, have issued yuan bonds in Hong Kong since 2007.
I thought this point of view was interesting.
The Yuan As New Global Reserve CurrencyNouriel Roubini argues that in the future, the Chinese yuan (aka the renminbi) will be the new "reserve currency of the world". I made that prediction 4 years ago, and I still believe in it.
However, it will be several more years before we start seeing oil quoted in yuans instead of U.S. dollars. First of all, the Chinese must make the yuan fully convertible. Something they will likely do eventually, but it will probably not happen during the next few years. And secondly, China must overtake America in economic size, something which will take at least another decade.
But some time (not too many years) after 2020, China will establish itself as the dominant economic power. And by that time, the yuan/renminbi will probably be fully convertible- and then it will overtake the U.S. dollar as the "reserve currency of the world", just like the U.S. dollar once overtook the U.K. pound.
I think there’s a good chance the yuan will win out, though I continue to hear talk of the Middle East countries attempting to implement a gold standard. In some sense, and on a broader time scale, this whole reserve currency game actually makes a lot of sense and seems to actually be market driven (at least somewhat). When the US was a manufacturing and production superpower, with 40-50% of the global economy, and a great trade surplus, it seemed natural to make the dollar the reserve currency. Besides, no one really could have stood up against us. It’s an open secret that the Chinese economy is fundamentally more sound than our own, and unless something drastic happens, it should continue to grow far faster than the US economy. The simple bottom line is that China has a trade surplus. Eventually, the fundamental strength associated with a trade surplus will tend to win out in the long run. A slightly different angle: Most wars (at the American ones) were determined by the strenght of the economy and economic conditions. I think it would be a little naive to discount the relationship between war and the economy. Either way, things should remain interesting for some time to come.
Speaking of China,
China Threatens U.S. Alt energy Plans
05/19/09 Baltimore, Maryland “Rare earths are more a Chinese thing than oil is an OPEC thing,” begins Byron King today. (Rare earths are hard-to-pronounce metals and minerals that, while in small supply, are found in seemingly every high-tech gadget around the world).
“The Chinese are running 95% of world output, and virtually all of the final refining and smelting… the U.S. left the biz about 10 years ago, and Japanese left it about four years ago.
“Rare earths are critical to all future ‘green’ energy, especially with things like permanent magnets for windmills (not to mention the rare earths that go into those ‘efficient’ light bulbs.) Every large windmill, for example, requires about 560 pounds of a rare earth called neodymium, for the permanent magnet within the turbine system. There’s no substitute for neodymium. People have gone through the entire periodic chart, and only neodymium will work in large permanent magnets.
“The U.S. has NO locale for manufacturing permanent magnets. None. Zilch.”
“The West had better get serious about rare earths or we’re forfeiting the key industries of the 21st century to China.”
david cay johnston in free lunch explains how our lead in rare earth magnet technology was transferred to china by GM ……ring a bell?
this happened in the 80’s GM gave the technology which they owned and perfected, to china ( a company owned by deng jiao pengs’ daughter to be precise……ah capitalism ya gotta love it even in china)
they gave it away in exchange for the right to sell some vehicles there. such a deal.
i think an interesting investigative report would be to expose just how much of our technology has been given away to our competitors for short term greed.
btw rare earth technology would be a very profitable portion of GMS’ business today. yes the captains of industry once again demonstrate why they get the big bucks.
i seem to have misplaced my soma again ………..good thing i dont own a gun
I heard from a friend (I wish I had better sources on this) that China attempted to buy the only?? rare earth mine in America. Since the supply of these elements is very unevenly dispersed throughout the world, this was a major issue. Apparently the US government caught on and actually blocked this attempt by the Chinese…So we made a defensive, reactionary move. I do wish we could actually forge ahead and not just respond to China.
I don’t get it. Timmy and Hank and Bennie and the King of the O-Bots keep telling us everything is over and we will soon return to unfettered growth AND get 39 miles per gallon to boot!!!