'Capital Market is a Calm Zone Amid US-China Conflict'... China Issues Dollar Bonds to US Investors for the First Time

Higher Interest Rates Expect Yields Above U.S. Treasuries... Rapid Economic Recovery Also Supports Bond Sales
"Bond Issuance Will Continue Regardless of U.S.-China Tensions"

[Image source=EPA Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] The Chinese government has issued dollar-denominated government bonds to American investors for the first time. Despite escalating tensions between the United States and China, the market showed strong interest in China due to its high yields. The fact that only the Chinese economy is showing signs of recovery amid a global recession caused by the novel coronavirus disease (COVID-19) also influenced the bond sales.

According to the Wall Street Journal (WSJ) and others on the 16th, the Chinese government issued dollar-denominated bonds worth $6 billion (approximately 6.9 trillion KRW) the day before. The maturities are 3 years, 5 years, 10 years, and 30 years. The scale of China's dollar-denominated bond issuance matches last year's record high. After issuing $2 billion in dollar-denominated bonds in 2004, the Chinese government halted foreign currency bond issuance for a long period, then resumed in 2017 with $2 billion issued. Subsequently, the amount gradually increased to $3 billion in 2018 and $6 billion last year.

This issuance has attracted attention because it is the first time the Chinese Ministry of Finance has sold government bonds directly to American investors and achieved relatively good results. Previously, the Chinese government sold bonds using the 'RegS' method, which cannot be traded in the U.S., but this time they also offered 144A bonds that U.S. investors can purchase. As a result, 47% of the $500 million 30-year maturity bonds were acquired by U.S. investors. Foreign media reported that nearly $30 billion in funds were gathered to purchase these bonds.

This reflects considerations of interest rate conditions and China's economic environment. The interest rates on the Chinese bonds sold this time were up to 0.8 percentage points higher than U.S. Treasury bonds. While the U.S. lowered its benchmark interest rate to near 0% after the COVID-19 outbreak, China's 1-year Loan Prime Rate (LPR), which effectively serves as the benchmark rate, remains at 3.85% annually.

The faster pace of China's economic recovery compared to other countries also attracted investors. The International Monetary Fund (IMF) forecasted that China's economic growth rate will increase by 1.9% this year, making it the only major economy to show growth. China's national credit rating is maintained at A- and A1 by international credit rating agencies S&P and Moody's, respectively, which is on par with Japan. The Chinese Ministry of Finance emphasized in its issuance documents that the economy is steadily recovering.

The market is paying attention to the fact that investors' movements do not seem to reflect the U.S.-China conflict. Although tensions between the U.S. and China are intensifying in various areas such as trade, technology, and political security ahead of next month's U.S. presidential election, the Chinese government and foreign investors appear largely unconcerned. Chang Weiliang, macroeconomic strategist at DBS Bank, said, "The 144A issuance shows that China wants to promote dollar-denominated bonds globally, including to U.S. investors," adding, "China has taken a pragmatic approach to elevate the financial market's status and liberalization, and will continue this method regardless of political conflicts with the U.S."

Samuel Fisher, Deutsche Bank's China bond market manager, described the bond transaction as "receiving tremendous welcome from institutional investors in the U.S.," explaining that the IMF's upward revision of economic forecasts, the rise in the Chinese stock market, and recovery trends in consumption-related indicators are positively influencing investment in Chinese bonds.

This content was produced with the assistance of AI translation services.