Last year, the Shenzhen Municipal People’s Government issued offshore bonds in Hong Kong for the third consecutive year, totalling 5 billion yuan including a green bond and a social bond. In the same year, the Hainan provincial government completed its second issuance in Hong Kong of 5 billion yuan, comprising green, blue and sustainable bonds.
“So far, Guangdong, Shenzhen and Hainan have issued offshore dim sum bonds,” said Samuel Kwok, regional head of APAC international public finance ratings at Fitch Ratings. Their reasons “could be to broaden the financing channel, as well as developing the [offshore yuan] market”, he added.
The issuance of dim sum bonds is part of China’s effort to internationalise the nation’s currency. The first offshore yuan bond was issued in Hong Kong in 2007, promoting the city as the largest offshore yuan centre outside mainland China.
She added that China’s Ministry of Finance will issue 55 billion yuan worth of treasury bonds in six tranches in Hong Kong this year, up from 50 billion yuan last year.
“We will leverage our unique advantages to further deepen the connectivity with markets on the mainland and enhance the city’s role as the global offshore [yuan] hub,” he said.
The city’s southbound Bond Connect, which has been trading since September 2021, has also contributed to the growth of Hong Kong’s offshore yuan bond market. Last September, the HKMA designated nine additional financial institutions as market makers for the southbound Bond Connect, which allows mainland China-based investors to buy Hong Kong products, bringing the total number of designated market makers to 22.
“The steady growth of dim sum bond issuance is also helped by the increased interest from southbound channel investors looking for additional yields,” said David Yim, head of capital markets for Greater China and North Asia at Standard Chartered. These local governments’ dim sum bonds “provide alternative high quality investment opportunities to yuan investors and perhaps a slight premium over similar credits in the onshore China markets”, he added.
China’s ratio of government debt to gross domestic product is low compared with that of other countries. It stood at 77 per cent at the end of 2022, compared with 121 per cent for the US, 111 per cent for France and 101 per cent for the UK, with Japan topping the list at 261 per cent, according to the International Monetary Fund.
This indicates there is room for mainland municipal governments to issue more bonds to raise funds.
