RMB: Growing up fast

In another sign that the renminbi is gaining in maturity, investors holding the currency are starting to choose carefully which deals to finance, and which to drop or avoid altogether, rather than taking whatever is going.

Duncan Phillips, co-head of Citi’s Asia-Pacific ex-Japan debt syndicate team, points out that Rmb24 billion in Rmb-denominated debt – so called ‘dim sum’ bonds – was raised offshore in the current year to April 24, Rmb2 billion less than the sum raised over the same period in 2011.

“The Rmb investor base is starting to get picky – before, they were willing to buy anything, but that’s not true anymore,” says Phillips, who in March completed a Rmb1 billion ($158 million) bond by Ford. The US carmaker dragged in orders worth Rmb10 billion, cutting transaction costs on the deal, the first junk-rated dim sum bond by a non-Chinese corporate. Other blue-chip firms to tap the market include Korea’s Lotte Shopping and Mexican carrier América Móvil.

Yet for every deal that gets done, there are dozens that won’t make it to the slab – particularly corporates from crisis-ridden continental Europe. “A Dutch bank would struggle today to do an Rmb deal, and a Spanish bank would find it impossible,” Phillips says. “Even French banks might struggle.”

Harder days are ahead for China’s currency. In the coming year or two Beijing is likely to move to create more swap deals with emerging-market central banks, while making it easier for individuals to hold Rmb-denominated investments overseas. The PBoC (People’s Bank of China) is also expected to liberalize interest rates and expand quotas on the QDII and QFII programmes that limit how much foreigner institutions can invest in Chinese securities, and vice versa.

But full financial reform remains a way off yet. A fully convertible yuan is at least five years away, reckons Wang Qinwei, China economist at Capital Economics – allowing the currency to float free would assume that China has a balanced current account and a healthy, open financial market.

At present, it’s not even close to either.