China to Issue Yuan Dominated Bonds in Turkey, as Lira Crisis Deepens

* Expert says impacts on China will be limited

By Silvi writer

The Bank of China said its has plan to issue Chinese-yuan dominated bonds in Turkey, as the country’s lira crisis deepens, contagion across the emerging markets has widened.

South Africa’s rand, Argentina and Mexico’s pesos, Russia’s rouble and emerging market stock markets around the globe have been dragged into the crisis, but Chinese analysts say impact on China will be limited.

MSCI’s benchmark index of global emerging stock markets fell to near its 2018 lows, with many emerging Asia exchanges getting hammered.

Mei Xinyu, a researcher at the International Trade and Economic Cooperation Institute of the Ministry of Commerce of China, the lira crisis won’t have major or lasting impacts on China, because Beijing’s trade volume with Ankara is “not very big”.

But Mei said the crisis, in general, is expected to last for a period of time.

The Turkish lira retraced some losses after touching a new record low on Aug 13.
929ff96ff431146c3242250bd431ae62The lira last traded down by around 3.5 percent against the greenback at 6.6475 at 2:30 pm HK/SIN on Aug 13. It had earlier dropped to a fresh all-time low of 7.24, before paring some losses after moves were taken to assuage market nerves frayed by the currency’s recent weakness.

The lira briefly plunged 20 percent against the dollar on Aug 10, finishing the US session lower by some 16 percent after US President Donald Trump said he had approved metals tariffs on Turkey to be doubled.

The weakness in the lira came against the backdrop of the Turkish economy facing major challenges, but it has come under pressure most recently after US-Turkey talks over the detention of a US pastor in Turkey appeared to make no major progress.

The Bank of China Turkey, the Turkish subsidiary of the BOC, said that it has been assigned to issue Chinese-yuan denominated bonds, the bank’s General Manager Li Ruojie said, as Daily Sabah has reported. Turkey is carrying out intensive studies so that the process can be successfully completed this year.

First-Panda-Bond-Under-the-Bond-Connect-Program-Successfully-Issues-768x511

Li assessed the objective “to open the Chinese market in foreign borrowing” mentioned in the 100-day presidential action plan.

Li pointed out that the Bank of China has been assigned as the leader issuer and one of the co-leader contractors for bond issuance in Chinese yuan, which has been planned for the first time by the Turkish Ministry of Treasury and Finance.

Turkey’s Treasury took action in February to investigate the possibility of issuing bonds in the Panda market. In this context, the Bank of China, HSBC and ICBC had been authorized to investigate bond issuance opportunities as part of the 2018 external financing program.

Assets that foreign institutions issue in yuan in China to meet their financing needs are called “Panda Bonds.”

The size of these bonds reached $24 billion as of May this year. On the other hand, China has the world’s third-largest bond market and continues to grow rapidly. The size of the market has reached $12 trillion.

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