World Economy

Luxembourg, France Compete to Be 1st Eurozone Yuan Hub

Luxembourg, France Compete to Be 1st Eurozone Yuan HubLuxembourg, France Compete to Be 1st Eurozone Yuan Hub

Luxembourg and France are racing to be the first to sell a eurozone sovereign dim sum bond, the key step in staking a claim as the single currency bloc’s offshore yuan hub.

Sovereign issuance is regarded by international investors as the crucial benchmark for developing a liquid market in foreign currency instruments, Xinhua reported.

The French Consul General in Hong Kong, Arnaud Barthelemy told the South China Morning Post that Paris would make its sovereign dim sum debut in the first quarter of this year. He said the state agency responsible for the French social security fund, Caisse d’Amortissement de la Dette Sociale, would make a “significant” dim sum bond sale in Q1, though he declined to disclose the exact size.

“We want the French government and corporates to do more, both from a trade and finance perspective when it comes to [yuan],” said Barthelemy.

Separately, Nicolas Mackel, chief executive officer at Luxembourg for Finance, the government-backed entity promoting the country as a financial center, said his government also planned to issue sovereign dim sum debt.

Luxembourg is home to the European headquarters of six Chinese banks, including ICBC and China Construction Bank. Its finance minister, Pierre Gramegna, heads to Beijing this week for talks with financial officials.

  Yuan Deposits

Luxembourg and Paris have 72.8 billion yuan ($11.68 billion) and 25.4 billion yuan of renminbi deposits respectively, according to estimates by PWC.

According to Dealogic, French issuers have sold a total of 1.58 billion yuan worth of dim sum bonds between 2011 and 2014. Air Liquide, Total, Renault, Veolia and Alstom are among Europe’s largest dim sum issuers.

That compares to 1.35 billion yuan raised by Singaporean companies, 1.91 billion yuan raised by German companies and 2.25 billion yuan by UK companies.

Britain’s sale of US dollar debt decades ago is now cited as the point at which the City of London became the de facto offshore financing center for dollar-denominated instruments, cementing London’s role as the world’s international financial capital for cross-border trades.

The British government sold its first sovereign dim sum debt in October 2014.

As Beijing’s strategy of increasing the international use of the yuan is in part driven by a desire to unseat the US dollar as the world’s premier unit of exchange, becoming a major center for yuan trading could offer similar economic prospects to other nations if the yuan eventually becomes as dominant as the dollar in the pricing of commodities, cross-border business deals and international loans.

Five of Beijing’s 14 offshore yuan hubs are in Europe: Frankfurt, London, Luxembourg, Paris and Switzerland.

According to payments system SWIFT, 44 percent of trade between China and France was denominated in yuan last year compared with 23 percent in Luxembourg.