2011-08-22 17:03

HONG KONG — The framework for bringing yuan funds raised offshore to the Chinese mainland will be in place by the end of this year, the Wall Street Journal reported Monday, citing the Hong Kong Monetary Authority (HKMA).

HKMA added that the move could increase the issue of bonds and bank loans denominated in yuan in Hong Kong, the offshore yuan hub for China.

While on an official visit to Hong Kong, Chinese Vice Premier Li Keqiang on Wednesday announced several initiatives aimed at easing the flow of offshore yuan back into the Chinese mainland. Mr Li suggested Beijing intends to follow through on the plans for what has been dubbed yuan foreign direct investment, but he didn't give a timeline.

Chinese authorities will make some revisions on rules and regulations regarding the yuan foreign direct investment plan in the coming months, and the framework should be in place by the end of this year, HKMA Deputy Chief Executive Peter Pang said in a press briefing Monday.

The rules will pin down the criteria of applications and the approval mechanism, which is likely to streamline the process for companies to seeking approval to remit yuan funds into their projects in China.

Currently, remittance of yuan funds raised offshore is approved by China only on a case-by-case basis.

"The measures could help boost companies' demand to tap yuan funding in Hong Kong, including issuing yuan bonds, borrowing yuan loans and even raising yuan funds through initial public offerings. That's for the companies to decide," Mr Pang said.

Hong Kong has been developing into a major offshore yuan hub since China removed some restrictions last year on the use and circulation of its currency. But restrictions on remitting yuan funds raised abroad back to the mainland has been a bottleneck for the development of the offshore yuan market.

While the Chinese government has sought to internationalize the yuan, it is also wary that could allow more fund inflows, which could stoke inflation that is running at its highest in three years.

In Hong Kong, demand for yuan bank loans has been particularly weak as borrowers can easily get cheaper loans denominated in the US dollar. As of late June, according to the HKMA, yuan loans in Hong Kong totaled 10.98 billion yuan ($1.72 billion), a fraction of the 553.6 billion yuan in yuan deposits in the city.

Issuance of the so-called dim sum bonds, or offshore yuan bonds, totaled 70 billion yuan so far this year, already double the issuance for all of last year, and is likely to exceed 100 billion yuan by the end of 2011, HKMA's Mr Pang said.

The first and the only yuan-denominated initial public offering was by a Beijing-focused real-estate investment trust controlled by businessman Li Ka-shing. Hui Xian REIT raised 10.48 billion yuan in Hong Kong in April.