China will allow international organizations such as the World Bank and Asian Development Bank to send proceeds from yuan bond sales home to encourage bond market development, the People’s Bank of China said.
In revised rules over so-called Panda bonds, the People’s Bank and three other government regulators said the rule change was made to encourage the opening up of the nation’s bond market, the central bank said in a statement on its website today.
These borrowers can convert proceeds into another currency and send this money overseas with the approval of the State Administration of Foreign Exchange, the statement said. The bonds should also be rated AA or above by two credit ratings firms, one of which should be registered in China to rate yuan-denominated bonds, it said.
Overseas firms are restricted from selling yuan-denominated notes in China, five years after the Asian Development Bank and International Finance Corp. sold the first Panda bonds. In May, Bank of Tokyo-Mitsubishi UFJ (China) Ltd. was the first foreign bank to sell bonds in China, when it issued 1 billion yuan ($149 million) of notes.
“This looks like the latest in a series of small scale policy experiments tending towards the gradual liberalization of the capital account,” William Hess, managing director at Beijing-based China Analytics Ltd., said. “It creates the possibility for an outbound release valve for China’s mountain of excess foreign exchange reserves,” he said.
The notice was issued by the People’s Bank of China, the Ministry of Finance, the National Development and Reform Commission, the country’s economic planning agency that regulates the corporate “enterprise” bond market, and the China Securities Regulatory Commission.
Panda bonds are yuan-denominated notes issued by foreign institutions in China.