Guangdong to join 'dim sum' bond feast with US$1 billion sale in Hong Kong, Macau

China's southern province Guangdong is looking to issue up to 7.5 billion yuan (US$1.03 billion) of offshore yuan-denominated bonds in a move that underscores China's renewed push to internationalise its currency and strengthen Hong Kong's role as an offshore yuan hub.

The province's Department of Finance is hiring bookrunners for bond issuances of up to 5 billion yuan in Hong Kong and 2.5 billion yuan in Macau, according to a notice on Monday. The maturity of the bonds will be no more than five years, according to the notice.

The planned offering will be the province's debut offshore yuan bond in Hong Kong and its fourth in Macau. The authority said the issuances will "further promote the integrated development of the Guangdong-Hong Kong-Macau Greater Bay Area".

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The sale of the yuan-denominated offshore bonds, also known as dim sum bonds, comes on the heels of Shenzhen's announcement on Monday of its fourth such issuance, worth up to 7 billion yuan. The latest Shenzhen bond offering will include a tranche with a 10-year tenure, while also matching the two-, three- and five-year tranches of previous issuances.

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 People's Government of Hainan Province completed its second issuance in Hong Kong of 5 billion yuan, comprising green, blue and sustainable bonds.

The issuance of dim sum bonds is part of China's effort to internationalise its 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.

Last year, dim sum bonds issued in Hong Kong increased by 65 per cent to 550 billion yuan compared with a year earlier, according to the Hong Kong Monetary Authority (HKMA).

The growth, driven by cheaper funding costs in the yuan compared with the US dollar due to several interest rate hikes by the Federal Reserve, continued in the first quarter of this year. The total value of Hong Kong's offshore yuan bonds increased by around 15 per cent year on year in the first quarter, Julia Leung Fung-yee, CEO of Hong Kong's Securities and Futures Commission, said in a speech earlier this month.

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.

HKMA CEO Eddie Yue Wai-man said in his reappointment statement last week that the city's de facto central bank will focus on strengthening Hong Kong's role as the global offshore yuan hub.

An evening view of Shenzhen, in China's southern province of Guangdong. Photo: Shutterstock. alt=An evening view of Shenzhen, in China's southern province of Guangdong. Photo: Shutterstock.>

"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.

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.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

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