Well into its second year of a trade showdown with the Americans, China is pushing ahead with its campaign to solidify an international loan market denominated in the currency of its fierce rival.
China is selling dollar bonds for the third straight autumn, with a potential $6 billion total of three-year, five-year, 10-year, and 20-year securities, according to people familiar with the plans.
The Ministry of Finance said it would help build a benchmark yield the curve for Chinese issuers, ranging from developers to local authorities, in its 2017 resumption of dollar-debt sales.
"The sovereign deal stresses that the dollar-bond market in China is a a crucial part of the policy, with issuers, encouraged to fund dollar bonds and onshore investors to buy them," Owen Gallimore, chief of finance planning at Australia & New Zealand Banking LTD disclosed.
China's business-as-usual strategy contrasts with growing concern over the decoupling of the two largest economies in the world. Henry Kissinger described the duo at last week's Bloomberg New Economy Forum in Beijing as "being in the foothills of a cold war" and the erstwhile US Treasury Secretary Henry Paulson said he was dismayed that his 2018 the message is coming true about an iron-curtain coming down.
Dollar bonds sold outside the US have been a feature of the global financial system since the 1960s and are a key financing tool for cross-border businesses. So in a sense, it's natural for China to want its firms to issue offshore bonds to make it easier and cheaper.
Chinese buyers typically take over the bulk of Chinese dollar bonds - they are a convenient place for banks to invest their deposits in foreign currency. That means borrowers do not need to worry about the kind of exodus from foreign investors that has plagued some emerging markets over the decades.
Nonetheless, because the US holds absolute dollar exposure to leverage and can exclude firms abroad, offering bonds in the US currency may potentially make Chinese lenders tread on soft grounds. Yet growing strains with China did see talks to happen in Washington recently with regards methods to trim down US investments to China.
Most see this kind of talk as mere blabber. Paulson, for his part, said last Thursday that "decoupling China from US exchanges" by delisting Chinese entities is just a horrible proposition.
"In reality, I don't think it's possible to have a decoupling anytime soon," said Becky Liu, head of China macro strategy at Standard Chartered PLC in Hong Kong, on the Chinese and US financial systems.
