China to issue yuan bonds in London

“These will be the first China renminbi government bond issues outside China”, said Jinny Yan, an economist at Standard Chartered Bank in London.

Sentiment toward the yuan has turned positive for the first time since early August as the PBOC succeeded in steadying the currency after its surprise devaluation on Aug. 11, according to the survey of 20 fund managers, currency traders and analysts conducted from Tuesday through Thursday. The ministry of finance didn’t respond to a fax request seeking comment on the proposed debt issuance in London.

China must balance steps to win greater clout for its currency with efforts to prevent sudden flows of capital into or out of the country. Next week’s announcement on sovereign debt will further cement London’s place as perhaps the most China-friendly financial hub in the West and help China popularize the use of its currency outside of its borders.

Though not the main goal, loosening controls over the yuan makes Chinese stocks more attractive to foreign investors.

While China’s image as a global growth engine has taken a hit, the reputation of the country’s currency only seems to be getting stronger. “Britain and China – we will stick together”, he declared triumphantly in Beijing less than a month after China’s so-called “Black Monday.” The yuan is edging closer to being added to the elite club of currencies that make up the worldwide Monetary Fund’s Special Drawing Rights.

The SDR now comprises four currencies, the US dollar, the euro, the British pound and the Japanese yen.

Chinese regulators have hinted since last week that the free market, not the government, would eventually control the yuan’s exchange rate. Amid equity market volatility, the PBOC has repeatedly adjusted the value of the currency, initially pitching it as a “one-off depreciation”.

Sources told Reuters earlier this week that Beijing would soon extend trading of the yuan in China to overlap with European trading hours, encouraging more global use of the yuan and supporting its case with the IMF. The London-based HSBC was the first foreign bank to get such approval from the Chinese government. The rhetoric around the visit is also being ramped up, with officials on both sides referring to a “golden era” or a “golden decade” in UK-China ties.