Study On The Capital Cost Of Hong Kong Offshore RMB Bond

June2007, People’s Bank of China and National Development and Reform Commission permitted mainland policy banks and commercial banks to issue RMB bond in Hong Kong. From then on, Hong Kong offshore RMB bond market formed. With the gradually opening policies, the issuers of Hong Kong offshore RMB bond are diversified, the types of the bond are gradually rich and the scale of the market is expending.However, the supply of Hong Kong offshore RMB bond is less than the demand, so that the coupon rate of Hong Kong offshore RMB bond is lower than the rate of onshore RMB bond. Currently, most study on the comparison of bond capital cost between offshore RMB bond and onshore RMB bond is focused on the coupon rate, thereby drawing a conclusion that offshore RMB bond for mainland institutions has cost advantage. Nevertheless, the comparison is unscientific and incomplete, since capital cost of bond consists of interest and raising funds. What’s more, the cost of offshore RMB bond is related to the way of RMB backflow.Based on the introduction of the theory of onshore and offshore bond capital cost and the comparison of offshore and onshore RMB bond, the paper will classify the mainland issuers into government, financial institutions and enterprises to respectively calculate the cost of offshore and onshore RMB bond for the same bond issuer, in order to provide basis for financing decisions.