(Yicai Global) Oct. 25 -- Shanghai is to issue CNY3 billion (USD442.73 million) of municipal debt in the city's free trade zone, inaugurating China's free trade zone cross-border bond program and marking an important milestone in the internationalization of the Chinese yuan.
The bonds are expected to be on the market by the end of next month.
China's first free trade zone, the China (Shanghai) Pilot Free Trade Zone, is a testing lab for financial innovation and deregulation in China. The China Government Securities Depository Trust & Clearing Co., a financial institution that provides centralized depository and settlement services for the inter-bank bond market in China, started preparing bond market services in the Shanghai FTZ as early as June last year.
"The issuance of China's first free trade zone bond by the Shanghai government will consolidate Shanghai's position as an international financial center. It will diversify investment products available locally and optimize existing pricing schemes. It will provide foreign investors with the opportunity to buy high-quality yuan assets, especially given the surge in demand for yuan holdings following its inclusion in the International Monetary Fund's Special Drawing Rights basket earlier this month," an informed source told Yicai Global.
"The free trade zone bond market in Shanghai and the domestic bond market fulfill complementary roles, enabling China to cater to and be more suitable for international investment and financing activities. The size of the free trade zone bond market is controllable and the risks are measurable. The launch of the yuan bonds will help us to acquire practical experience in the steady opening up of the Chinese capital market in both directions, while ensuring the security and stability of the domestic capital market," an industry veteran told Yicai Global.