(Yicai Global) Sept. 28 -- The local governments of Guangdong province and the city of Shenzhen will become the first ones in the Chinese mainland to issue offshore yuan-denominated bonds in Hong Kong and Macau next month.

Shenzhen’s Financial Bureau will issue CNY5 billion (USD774 million) of two, three, and five-year offshore yuan local government bonds in Hong Kong, and register them at the Hong Kong Exchanges and Clearing for trading, it said on Sept. 24. On the same day, Guangzhou’s Department of Finance announced it will issue CNY2.2 billion three-year bonds in Macau to be registered at Chongwa (Macau) Financial Asset Exchange for trading.

This move can enforce cross-border financial cooperation between Guangdong, Shenzhen and Hong Kong, Macau, improve the influence of the special administrative regions’ bond markets, vitalize their offshore yuan markets, as well as provide international investors with more choices when investing in yuan-denominated assets, Ming Ming, deputy director at CITIC Securities Research Institute told Yicai Global.

It is a great innovation that will surely diversify the offshore yuan-denominated assets, industry insiders told Yicai Global, noting that until now offshore yuan bonds were all offshore yuan-denominated government debts issued by the Ministry of Finance.

Offshore yuan-denominated local government bonds are highly rated, thus more attractive than high-yield government debts, and can meet investors’ divers demand, an experienced macro researcher at a joint-stock bank said to Yicai Global. “Other local governments will issue yuan-denominated bonds in the offshore market in the future,” they added.

“If more local governments issue yuan-denominated bonds in the overseas market, the yuan will receive more attention in Hong Kong and Macau, boosting the development of the bond markets in the two SARs and advancing the yuan internalization,” said Lian Ping, chief economist at ZhiXin Fund and director of its research institute.

In the mid and long-term, issuing offshore bonds can be a means to affect the offshore yuan liquidity and exchange and interest rates, so as to become a macro-market regulatory tool, added Lian, who is also chairman of the China Chief Economist Forum.

This is also a great opportunity for Guangdong and Shenzhen to present their economy and development status to overseas markets, Ming noted.

For Guangdong and Shenzhen issuing offshore yuan-denominated local government bonds adds another bond issuance channel, Lian said, adding that the issuance costs should be even lower than the ones in the Chinese mainland.

Editors: Tang Shihua, Futura Costaglione