McDonald's Corporation became the first foreign company to issue a bond in the Chinese currency, as Beijing takes new steps to increase the use of the yuan in international transactions.
The U.S. fast-food giant this month borrowed 200 million yuan, the equivalent of 29 million dollars, by issuing a bond to investors in Hong Kong. With the help of Standard Chartered Bank, McDonald's took advantage of recently relaxed rules in the use of the Chinese currency, also known as the renminbi.
Sundeep Bhandari, regional head of global markets in Northeast Asia at Standard Chartered, says the McDonald's bond will be first of many from foreign companies.
"We are talking to other clients who are interested to issue in Hong Kong. Obviously, the clients who are most keen to look into this are those who have presence in China so they can raise funds in Hong Kong and remit back to China," said Bhandari.
In February, China's central bank allowed foreign companies to issue yuan bonds in Hong Kong, to promote the use of the currency in international capital markets.
The McDonald's bond and a few others by Hong Kong companies offer those holding large amounts of yuan a new way to invest it. At the same time, McDonald's raises capital to expand in China, where it will open 175 new restaurants this year.
In the past, China more tightly restricted use of its currency. Foreign companies in China had to exchange yuan to U.S. dollars before they could transfer money to their home country.
But China's economy is dependent on exports, and that increases demand to use the yuan overseas. In June, the government allowed Hong Kong banks to facilitate trade payments in yuan between companies in different countries. It also relaxed restrictions on transferring yuan between banks and companies in Hong Kong and allowed yuan deposit holders here to invest their money.
Amar Gill, head of thematic research at the investment bank CLSA Asia Pacific Markets, says Hong Kong banks now hold about 80 billion yuan.
"I expect that in the next two years it probably would at least double what it is now and that would help to develop a bond market in Hong Kong of renminbi paper," said Gill.
Earlier this month, Beijing allowed central banks and commercial banks overseas to buy government bonds in China.
However, the yuan still can not be exchanged with all other currencies, all over the world. Nor does the exchange rate move freely, as do the currencies of other big economies, such as Japan, the United States and Germany. Bhandari says China is moving gradually toward having a fully convertible currency.
"You're going to see further relaxation at a pace that makes sense," said Bhandari.
Despite moves to internationalize the yuan, China's foreign exchange policy continues to cause friction with its trading partners, such as the United States. The central bank limits the daily movement in the value of the yuan against the U.S. dollar.
This, the U.S. and other governments argue, keeps the yuan unfairly weak and gives Chinese exports an unfair advantage, contributing to trade imbalances.