As issuance of yuan-denominated bonds and overseas yuan lending surge, analysts say the yuan is establishing itself as a global fundraising currency. Local securities circles and foreign media cited the yuan's low interest rates stimulating investment demand and rising yuan international settlement as reasons.
According to Reuters on the 22nd, from January to November this year, foreign entities issued 169.7 billion yuan (about 36 trillion won) of yuan bonds onshore and a record 801.9 billion yuan (about 169 trillion won) offshore. Considering that bonds issued worldwide this year total $9.57 trillion (about 14,166 trillion won), the absolute size is still small, but the volume has more than doubled over the past three years.
Along with the expansion in bond issuance, the range of issuers is diversifying, accelerating a market structure reshuffle. The local outlet Shanghai Securities News said, "In the early stages, issuance by financial institutions and bank funding dominated, but recently the issuers have expanded significantly to state-owned enterprises, high-quality private firms, technology companies, and overseas institutions," adding, "The investor base is also gradually diversifying from being bank-centered." In fact, since late last year, Chinese technology companies such as Alibaba, Baidu, Tencent, and Meituan, as well as overseas issuers including Singapore's sovereign wealth funds Temasek, Nestlé, and Chubb, have entered the dim sum bond market one after another.
As for Chinese banks' overseas yuan lending, it has more than tripled over the past four years to a total of 2.52 trillion yuan (about 528 trillion won). According to the People's Bank of China, by contrast, over the same period the outstanding loan balance of foreign-currency loans fell to $375 billion (about 555 trillion won) as of the end of last year. As a result, there is speculation that overseas yuan lending could overtake dollar lending.
Bankers cite funding expense as a driver of the boom in yuan bonds and loans. Since 2022, while the United States raised interest rates to curb inflation, China cut rates to ease economic slowdown and deflationary pressure, keeping yuan funding costs lower than the dollar and creating attractive conditions for both issuers and investors.
At the same time, the demand base for the yuan is steadily deepening, and there is a stronger tendency to hold the yuan itself beyond simple interest-rate arbitrage. Samuel Fischer, head of China institutional sector for debt capital markets at Deutsche Bank, told Reuters, "Among global investors, the yuan is increasingly being viewed not merely as a vehicle for arbitrage transactions but as a target for asset allocation," adding, "With the dollar at an important inflection point, currency diversification is indeed under way." Xiong Yi, chief economist at Deutsche Bank, also told Shanghai Securities News, "Unlike the speculative demand based on past expectations of yuan appreciation, investors now place greater emphasis on its practical utility as a cross-border settlement currency."
Yuan settlement is in fact becoming more active. That is the result of the Chinese government fostering the yuan for years as a currency for international trade and financial settlement. According to the Bank for International Settlements (BIS), the yuan's share in global over-the-counter (OTC) foreign-exchange transactions rose to about 8.5% as of April this year. That is double in a decade, putting it close behind the No. 4 pound at 10.2%. Because foreign-exchange transactions occur between two countries' currencies, the total share in that survey sums to 200%.
China-led infrastructure programs such as "Belt and Road" are also boosting demand for the yuan. For example, Indonesia and Kazakhstan issued dim sum bonds in the offshore yuan market this year, and Kenya converted a dollar-denominated railway construction loan into yuan. Ethiopia is reportedly discussing a similar conversion.
However, experts said China is not trying to directly replace dollar hegemony but is seeking to build an alternative financial ecosystem that operates outside the dollar system. Ciro, a strategist at BNP Paribas Asset Management, said, "China is designing a transition in the currency regime not through declarations, but through thousands of tangible fundraising and settlement transactions," adding, "China's goal is not to topple the dollar, but to prevent the dollar-centered system from being used as a tool to pressure China."