Offshore borrowing in renminbi hits record high of nearly $150bn

{"text":[[{"start":8.56,"text":"Offshore borrowing in China’s currency has hit a record high as a growing number of international corporations and foreign governments seek to take advantage of the country’s record-low interest rates to borrow cheaply."}],[{"start":20.32,"text":"Issuance in China’s “dim sum” and “panda” bond markets has hit Rmb1tn ($149bn) so far this year, according to FT calculations, putting it ahead of last year’s total, itself a record high."}],[{"start":34.76,"text":"Borrowers can raise renminbi-denominated debt outside mainland China through the so-called dim sum bond market or in mainland China in what is known as the panda bond market."}],[{"start":44.64,"text":"The rise in issuance has been encouraged by the government and comes as Beijing is trying to extend the global reach of its currency as part of efforts to compete with the US dollar and financial system."}],[{"start":55.96,"text":"Borrowing in renminbi has become cheaper as Chinese borrowing costs have diverged sharply from those in the US, with a 10-year government bond yielding 1.68 per cent compared with 4.78 per cent for an equivalent Treasury, close to the widest spread on record."}],[{"start":null,"text":"

"}],[{"start":72.28,"text":"China’s dim sum bond market has issued Rmb786.3bn this year, overtaking last year’s record total. Borrowing in the panda bond market has hit Rmb231.6bn in 2026 so far, already more than in any full year on record."}],[{"start":90.16,"text":"Borrowing is not limited to foreigners — Chinese entities have made up close to two-thirds of dim sum bond issuance this year and can use the proceeds to fund overseas operations."}],[{"start":99.28,"text":"“The issuance and investor participation have been crazy,” said David Yim, head of capital markets for Greater China and north Asia at Standard Chartered, of the offshore renminbi bond market."}],[{"start":110.62,"text":"“There are more natural needs for renminbi funding. Whether it’s investment in China or you take it out and pay your suppliers in renminbi, the need for that is more.”"}],[{"start":null,"text":""}],[{"start":119.32,"text":"Authorities increased the amount of money that mainland investors can send south to Hong Kong through the Bond Connect market access scheme over the summer, which bankers said had helped boost issuance."}],[{"start":128.96,"text":"“The quota expansion was a very positive signal to the market,” said Xixi Sun, Greater China bond syndicate head at Citi, which was involved in a Rmb3.5bn dim sum bond issuance by Kazakhstan’s state oil and gas company KazMunayGas last month."}],[{"start":145.44,"text":"“We’ve seen the onshore insurance companies getting the [southbound Bond Connect] channel cleared,” Sun said. “That’s been driving the long-dated dim sum issuance.” This year, companies such as Tencent have issued 10- and 30-year dim sum bonds."}],[{"start":160.74,"text":"The market’s growth is being supported by an enormous pool of savings in mainland China that has limited investment options. Banks and insurance companies are rushing for assets to invest in now that yields on Chinese government bonds have dropped so low and overall credit demand is weak. In July, new bank loans declined by Rmb340bn, the largest monthly drop since records began."}],[{"start":185.68,"text":"Panda and dim sum bonds can offer a small but growing source of slightly higher yields for such investors. This year, the weighted average yield of a panda bond is 1.85 per cent and its duration is 3.17 years, according to data from Wind. That compares with a yield of about 1.7 per cent on a 10-year Chinese government bond."}],[{"start":206.34,"text":"This type of debt is still a small part of Chinese fixed income, with panda bonds accounting for just 0.25 per cent of the country’s bond markets, according to Wind."}],[{"start":216.48,"text":"Although sovereign borrowers including Indonesia, Slovenia, Pakistan and Kazakhstan have tapped the panda bond market in the past year, the rise in issuance is primarily being driven by Chinese and non-Chinese banks."}],[{"start":228.8,"text":"“We’ve already seen very good growth but it’s being driven primarily by banks,” said Samuel Fischer, head of onshore debt capital markets for China at Deutsche Bank."}],[{"start":238.52,"text":"In late August, UBS borrowed Rmb2bn through five-year panda bonds with a coupon of 1.78 per cent in its inaugural issuance in the market. Goldman Sachs has issued Rmb61.5bn of dim sum bonds this year. Foreign banks typically convert the proceeds from renminbi bond sales into major currencies for use in their global operations."}],[{"start":260.52,"text":"Multinational corporations are less active. Despite its strong growth, renminbi-denominated debt has been absent from the borrowing plans of large corporates this year, such as the US-based hyperscalers that have increasingly borrowed from foreign credit markets."}],[{"start":274.9,"text":"A major factor holding them back is the relatively small size of bond issuances, said Fischer."}],[{"start":280.96,"text":"“Our clients want to know if they can do a $1bn issuance. We’re getting to that point,” Fischer said. “Once people see that an issuer can successfully raise $1bn, new issuers will follow quickly.”"}],[{"start":294.28,"text":"Another factor is the difficulty of attracting big institutional investors from mainland China into the dim sum and panda bond markets."}],[{"start":302.12,"text":"Such investors “probably have to do three or four months’ work before buying a foreign name, unlike western fund managers who can buy with a credit rating only”, said StanChart’s Yim."}],[{"start":312.16,"text":"“You have to do extensive marketing work to penetrate this investor pool,” he added."}],[{"start":317.12,"text":"The renminbi’s role in global finance remains small. There has been growing use of renminbi-denominated loans offshore and the currency has grown in trade finance, but its usage as a reserve asset remains limited."}],[{"start":330.16,"text":"Although Chinese government bonds have outperformed sovereign debt from the G7 since 2020, global fund managers now cite the country’s low yields as a reason for not raising their allocation."}],[{"start":341.28,"text":"Still, analysts and bankers said it was possible that the rapid growth of China’s panda and dim sum markets represented the beginning of the renminbi as a global funding currency similar to the role Japan’s yen played during that country’s decades of deflation and low interest rates."}],[{"start":357.76,"text":"“Low interest rates make a currency attractive for funding purposes. We saw similar dynamics with the yen historically,” said Hui Shan, chief China economist at Goldman."}],[{"start":372.68,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1788858915_8392.mp3"}