British Columbia Warms Up Dim Sum in Aid of Yuan HubChristopher Donville
British Columbia is redoubling efforts to promote Canada as a center for offshore trading in China’s currency through the sale of Dim Sum bonds.
Canada’s westernmost province, which a year ago was the first foreign government to sell yuan-denominated debt, plans to tap the market again as talks progress between Canada and China on a yuan-trading hub, B.C. Finance Minister Michael de Jong said in an interview.
“There is a linkage,” de Jong said Oct. 21 at his office in Victoria, the province’s capital city. A planned second sale “sends a powerful message about our seriousness of intent in both being present in that debt market and also facilitating the internationalization of the renminbi.”
British Columbia, with a population of 4.6 million people, is moving to assume a higher profile among China’s 1.36 billion people as the province seeks to expand trade and attract capital from East Asia for natural-resource projects, including development of a multibillion dollar liquefied natural gas industry.
An additional sale of Dim Sum bonds “is a good step, even if it does seem to be symbolic,” Bruce Ralston, a member of the province’s legislative assembly and the opposition New Democratic Party’s trade spokesman, said yesterday by telephone.
A year ago, the province sold RMB 2.5 billion ($410 million) of 2.25 percent one-year Dim Sum bonds. The issue, which matures Nov. 13, closed at a price of 99.92 cents on the dollar, little changed this year.
On average, Dim Sum bonds have fallen to 99.4 cents on the dollar, from 99.8 cents at the start of the year, according to a Bank of America Merrill Lynch index.
Since the initial sale, B.C. has stepped up efforts to advocate for the concept of a multi-city yuan trading center in Canada that would validate Vancouver’s potential as a Pacific coast center for trade finance.
“How do we punch above our weight?” de Jong said. “You do it by moving quicker, moving faster and moving first. That’s how you do it.”
That assertiveness put him at odds with business leaders in Toronto, Canada’s largest city and financial services capital, who have argued that the yuan hub should be based there.
“We started off in pursuit of this objective in a classically Canadian way -- Toronto versus Vancouver; Vancouver versus Toronto,” de Jong said. “We’ve managed to bring both together.”
Vancouver and Toronto have formed a working group to sort out how they and other Canadian population centers such as Calgary would function as a currency hub. Finance Minister Joe Oliver said in June that Canada and China have held talks on the topic of a hub.
“It is conceivable that Vancouver will become a major center for issuing and floating bonds should it become host to the RMB hub,” researchers Gregoire-Francois Legault and Hatty Liu said in a July report prepared for the Vancouver-based Asia Pacific Foundation of Canada.
The topic of the proposed hub may come up next month when Canadian Prime Minister Stephen Harper is in Beijing for a meeting of the Asia-Pacific Economic Cooperation group, de Jong said.
China has already signed agreements to trade its currency more freely with Singapore, London and Frankfurt as part of an economic restructuring that includes taking steps to loosen exchange controls.
“Recent preliminary discussions have taken place between Canadian and Chinese officials on the potential for the creation of a renminbi hub in Canada,” Jack Aubry, a spokesman for Canada’s finance department, said yesterday by telephone. “Canada is actively pursuing this dialog.”
Official hub status in most other jurisdictions has consisted of two things: a currency swap agreement between the two country’s central banks and the appointment of a clearing bank by the Chinese.
A swap agreement gives a country’s central bank access to yuan it can lend as a backstop for a commercial bank to settle transactions if it depletes its own reserves. A designated clearing bank is appointed by Chinese authorities to settle transactions in yuan, also known as renminbi.
Global Dim Sum issuance fell to $4.1 million in the third quarter from a record $11.7 in the second quarter, Fitch Ratings said in a report on Oct. 14. Fitch said it expects issuance to rebound in the fourth quarter.
“These markets tend to be living, breathing beasts that change their demeanor and character from time to time,” de Jong said. “What won’t change is our desire to make our presence felt.”