Page last updated at 08:50 GMT, Tuesday, 8 September 2009 09:50 UK

China to sell yuan bonds abroad

chinese yuan
Chinese bonds in yuan have previously been sold only on the mainland

China has announced its first sale of government bonds in yuan outside the mainland.

The government will sell 6bn yuan ($880m; £534m) of bonds in Hong Kong to "improve the international status of the yuan," the finance ministry said.

The sale is a milestone as China opens up its financial markets and promotes its currency as a world benchmark.

Earlier this year, China's central bank called for a new global reserve currency to replace the US dollar.

'Internationalisation'

Analysts said the bond sale was China's attempt to "internationalise" its currency and develop the market for financial products based on the yuan - which was fixed to the dollar until July 2005.

"They are not issuing the bonds for financing purposes," said Ben Simpfendorfer, an economist at Royal Bank of Scotland.

"The aim is ultimately internationalisation of the yuan and Hong Kong is a laboratory for that," he said.

Government yuan-denominated bonds would eventually encourage corporations to issue their own debt in the Chinese currency and encourage new markets, Mr Simpfendorfer added.

The bond sale will launch on 28 September.

In May, China allowed two non-state banks to sell yuan bonds in Hong Kong, which is a Chinese territory with a separate regulatory and monetary system.

Bank of China and four other Chinese lenders have also issued yuan-denominated bonds in Hong Kong since 2007.

Since ending the dollar peg, the yuan has risen almost 19% against the US dollar.

Chinese central bank governor Zhou Xiaochuan has said the financial crisis has showed the dangers of relying on one currency.

With the world's largest currency reserves of $2tn, China is the biggest holder of dollar assets.



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