China to issue $880 mln in bonds in Hong Kong: govt

China said Tuesday it would issue six billion yuan (880 million dollars) in government bonds in Hong Kong later this month, marking the first such sale outside the mainland.

The bonds, to be launched on September 28, will "improve the international status of the yuan" and "provide a pricing benchmark for mainland institutions' yuan-denominated bond sales in Hong Kong," the finance ministry said.

The move will facilitate yuan settlements in neighbouring countries and regions, the ministry said in a statement, as China moves to realise its goal of making the yuan an international currency.

The sovereign bonds will also "help consolidate Hong Kong's role as an international financial centre" and "encourage more mainland institutions to issue yuan-denominated bonds" in the former British colony, it added.

A spokesman for the Hong Kong government hailed the issue of the bonds as a new milestone for the development of yuan business in the southern Chinese territory.

It "clearly demonstrates the central government's support for Hong Kong as an international financial centre", the spokesman said.

The bonds will be offered to both individual and institutional investors and the specifics of the issuance will be decided "according to market rules", the Chinese finance ministry said.

Analysts argued that Beijing was not targeting financial returns on the issue of the bonds, but rather the creation of a more powerful yuan on the global scene.

"They are not issuing the bonds for financing purposes," Ben Simpfendorfer, a Hong Kong-based economist at Royal Bank of Scotland, told AFP.

"At the moment they don't suffer financing problems. The aim is ultimately internationalisation of the yuan and Hong Kong is a laboratory for that," he said.

"A yuan-denominated bond issue would help corporates eventually issue yuan-denominated bonds and it would encourage the growth of yuan-denominated investment products in Hong Kong."

Morgan Stanley's chief economist for China, Qing Wang, said he expected investor demand for the bonds to be strong, even though they would be priced higher than corporate bonds.

"I think the appetite will be strong as there's not much supply," Wang said. "Sovereign bonds are risk-free so you should not expect a high yield."

"The sovereign bond market is a very important first step to developing a corporate bond market. Corporate bonds will be priced against that (sovereign) benchmark at a discount or premium," he added.

In May, Beijing permitted the Chinese arms of London-based HSBC and Hong Kong's BEA to issue yuan bonds in Hong Kong, media reports then said.

The move followed central bank governor Zhou Xiaochuan's suggestions in an essay earlier this year that the US dollar should eventually be replaced as the world's reserve currency.

Only the Asian Development Bank and the International Finance Corporation have previously been allowed to sell yuan-denominated bonds, and only in China.

Bank of China and four other Chinese lenders have also issued yuan-denominated bonds in Hong Kong since 2007, according to previous media reports.