China, the world's second-largest economy, is expected to grow by 9.5 percent this year.
"China may not want the offshore pool of RMB to return in the form of portfolio investments into equities or real estate as these markets do not need much fresh capital, but they would welcome more foreign direct investment," said Dariusz Kowalczyk, an economist at Credit Agricole CIB in Hong Kong." There could be more dim sum bond issuance to raise funds for investment in China, which could push up yields."
Dim sum note sales may increase to RMB 200 billion ($31 billion) in 2011, from RMB 37.5 billion last year, as global investors bet on the RMB appreciating against US$ more than the currencies of Brazil, India and Russia, according to an estimate from Mizuho Securities Asia Ltd. Dim sum bond issuance has reached RMB 68 billion so far this year.
Overseas investment in China rose 26 percent to $38.8 billion in the first quarter of the year, China's Ministry of Commerce said last month. Currently, foreign direct investment in RMB needs case-by-case approval from the authorities, Chan said. RMB deposits in Hong Kong increased 13 percent from the previous month to RMB 511 billion in June, according to data from the HKMA.
The new rules may lead to large-scale RMB-denominated investment into the mainland and "may slow growth of the offshore pool of RMB," Kowalczyk said. "Plans for simplified new regulations governing RMB-denominated FDI are not a surprise given that it's naturally a next step to internationalize the currency."
