Offshore issuance of renminbi-denominated debt, known as "dim sum" bonds, has reached record highs this year, with total borrowing hitting Rmb300 billion ($44 billion) and sales potentially on track to surpass Rmb466 billion from 2022. This boom is fueled by attractive low Chinese interest rates, making renminbi borrowing cheaper than dollar-denominated debt, where the average coupon rate for offshore renminbi debt is 1.83% compared to 4.99% for dollar debt. Foreign issuers like Goldman Sachs, which has borrowed Rmb32.1 billion, and institutions from Portugal, Finland, and Korea are increasingly tapping this market. Policymakers' support for the renminbi has also helped stabilize its value against the dollar, encouraging further issuance.
The surge in renminbi borrowing is also evident in "panda" bonds, with sales by foreign issuers in China reaching Rmb75 billion ($10.4 billion) in 2023, already surpassing the 2021 full-year record. This trend benefits both the panda market, connecting foreign issuers to Chinese investors, and the dim sum market, used by Chinese borrowers to access foreign capital, primarily through Hong Kong. This growth reflects China's broader push to internationalize its currency and reduce reliance on the US dollar, despite keeping its capital account closed.
US banks, led by Goldman Sachs, have significantly increased their renminbi borrowing, with self-led issuance surging to Rmb47.5 billion. Goldman Sachs, the largest foreign issuer of dim sum bonds, is swapping the proceeds into dollars and hedging currency risk, indicating that while the borrowing is in renminbi, the funds are often converted for use elsewhere. Analysts note that the offshore renminbi has become a major funding currency, taking over a role once held by the Japanese yen, which has seen rising borrowing costs. This move is supported by Beijing, which encourages foreign issuers to use renminbi to expand its offshore market and reduce dollar reliance.
The demand for dim sum bonds is largely driven by mainland Chinese investors accessing the Hong Kong market through the Bond Connect program, which offers higher returns than onshore bonds due to lower liquidity. The program expanded in June to include insurance companies and is expected to double its annual transaction quota from Rmb500 billion to Rmb1 trillion. While the dim sum market is still smaller than China's onshore fixed-income market, it provides an attractive alternative for investors seeking to diversify away from dollar assets, with strong support from the Hong Kong government to grow its role as an offshore renminbi hub.
