China poised to issue sovereign debt in renminbi in London

To emphasise China’s selection of London as its preferred offshore renminbi financial centre in a non-Chinese timezone, Beijing is also planning a second tranche of renminbi bonds to be issued in London by the China Development Bank, the leading source of finance for overseas investment projects.

China’s planned sale of sovereign bonds was earlier reported by the Financial Times and comes before President Xi Jinping pays his first state visit to Britain during the October 19-23 period.

Bankers and economists at events this week in London, the biggest hub for yuan trading outside Asia, said there were still problems with the depth of liquidity of yuan markets, chiefly relating to the lack of an easily accessible market in Chinese government bonds.

China is planning to double the onshore yuan’s trading hours to keep the market open during the European day as it pushes for the currency to be granted reserve status at the worldwide Monetary Fund, according to people familiar with the matter. The ministry of finance didn’t respond to a fax request seeking comment on the proposed debt issuance in London.

“It does take time to cultivate a new investor base”, said Ngan of China Everbright. The debt would be issued by the People’s Bank of China, the country’s central bank. “It’s a milestone for the internationalization of China’s bond market”. “Britain and China – we will stick together”, he declared triumphantly in Beijing less than a month after China’s so-called “Black Monday.”

But many observers point out that even if the yuan were included in the SDR, significant hurdles would still need to be cleared before central banks would consider using it as a reserve currency.

The International Monetary Fund reviews the currencies in the SDR basket every five years, which now includes the US dollar, Japanese yen, British pound and the euro, and whether to add the RMB to the basket is a major issue for this year’s assessment. Opening up an global market for renminbi-denominated sovereign debt could help balance worries that the renminbi is still too vulnerable to calculated political influence. In recent years, the Cameron government has been eager to sideline normative concerns such as human rights and China’s global behavior in other areas in pursuit of a broader and more profound commercial relationship.