If the plan goes through, it will offer foreign companies an attractive channel to raise yuan-denominated funds onshore, and place Shanghai in a direct competition with offshore yuan centers such as Hong Kong and London.
However, unveiling such a program could further hold back the launch of the international board at the Shanghai exchange, which would allow foreign companies to issue yuan-backed shares.
Shanghai's 2011-2015 development plan hopes to attract foreign enterprises to issue stocks and bonds on the local stock exchange as well as medium-term bills on the interbank market.
The sources in Shanghai also said regulators are also studying plans to allow some foreign companies, especially financial institutions, to issue bonds on country interbank debt market, which targets institutional investors.
Compared with stocks, bonds are usually considered as lower risk, said a senior executive at a Chinese investment bank in Shanghai. eeing the success of Dim Sum bonds in Hong Kong, Shanghai officials really want to push forward the yuan debt market to foreign issuers.
According to the Hong Kong Monetary Authority, the development of offshore market of yuan bonds, better known as im Sum bonds in Hong Kong was very impressive, with bond issuance exceeding 100 billion yuan in 2011, three times the total of 2010.
In April, HSBC raised 2 billion yuan by issuing the first Dim Sum bonds in London, a key development hailed by the British city to become a center for offshore yuan trading.
Liu Yu, a trader with Orient Securities Co, told Asia Outbound that an offshore yuan bond market is highly advantageous for multinational companies as they have an alternative fund-raising channel with no need to repatriate the funds.
The plan may not greatly affect Hong Kong or London in the near term as borrowing costs there could be lower due to strong demand, said Liu. owever, in the long term, Shanghai could be a tough rival as its market grows mature.
China State Council has drafted a plan to develop Shanghai into an international financial centre by 2020. One of the top priorities is to further open the capital market with the launch of an international board on the Shanghai stock exchange.
Companies including Coca-Cola, HSBC, Standard Chartered and Unilever have expressed interest in listing on the international board. But the launch, originally scheduled in 2010, was postponed due to concerns it may siphon too much liquidity from the main board.
Creating an onshore yuan bond market for foreign companies ahead of an equity market indicates a cautious regulatory stance towards opening the capital industry, said Liu. nyway, it the right step Shanghai should take.
