China Likely To Allow Foreign Companies Yuan Bonds In 2007

Currently only World Bank and Asian Development Bank are allowed to issue yuan-denominated bonds.

Wu Xiaoling, the vice governor of the People's Bank of China, said the central bank was in favor of foreign companies and international organizations issuing yuan-denominated bonds in China, the China Securities Journal reported on March 5.

Supervisory authorities would not reject such applications from institutions registered in China as long as the companies were engaging in legitimate business operations, Wu said.

Foreign companies and international organizations currently must transfer foreign exchange into China from abroad when they need capital for domestic investment purposes. Currently the World Bank's International Finance Corp and the Asian Development Bank are the only foreign entities allowed to issue yuan-denominated bonds in China.

By allowing foreign companies to raise funds within China would also benefit the development of China's economy, Wu added.

Meanwhile, she confirmed that preparations were under way to set up the State Foreign Exchange Investment Company, a company that is expected to be in charge of investing some of China's enormous foreign exchange reserves. She said that Central Huijin, the central bank's investment arm, would be part of the new company. She also downplayed market concerns that the new company would exert a large impact on the U.S. Treasury market, while acknowledging that part of China's increased forex reserves would be invested in non-U.S.-dollar assets. Analysts estimated the share of U.S.-dollar Treasury bonds is now 60% of China's forex reserves.

Copyright Agence France-Presse, 2007

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