Luxembourg and France face-off in race to be euro zone yuan hub

Luxembourg and France are racing to be the first to sell a euro zone 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.

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 the first quarter, 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],” Barthelemy said.

Separately, Nicolas Mackel, chief executive at Luxembourg for Finance, the government-backed entity promoting the country as a financial centre, 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.

Luxembourg and Paris have 72.8 billion yuan (HK$91.6 billion) and 25.4 billion yuan of renminbi deposits respectively, according to estimates by PwC.[…]

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 centre 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.

Luxembourg in particular is looking to capitalise on that wider yuan development strategy by seeking to attract more listing business on its local stock exchange for investment funds, exchange traded funds and dim sum bonds. It is currently the third largest dim sum bond listing venue globally with a 14 per cent market share, behind Hong Kong’s 44 per cent and Singapore’s 22 per cent. Gregory Behin, head of strategy and development at Luxembourg Stock Exchange, said two agreements were signed after meeting with Shenzhen and Shanghai stock exchange officials last week.

Five of Beijing’s 14 offshore yuan hubs are in Europe: Frankfurt, London, Luxembourg, Paris and Switzerland. According to payments system Swift, 44 per cent of trade between China and France was denominated in yuan last year compared with 23 per cent in Luxembourg.