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December 1, 2025
In November 2025, China's Ministry of Finance successfully issued $4 billion in USD-denominated sovereign bonds in Hong Kong, marking a significant move in the international debt markets. Investor demand was exceptionally strong, with total orders reaching $118.2 billion—nearly 30 times the issuance amount. The 5-year tranche alone saw oversubscription of 33 times. This follows other recent actions, such as the issuance of €4 billion in euro-denominated bonds in Luxembourg and a $2 billion USD bond sale in Saudi Arabia in 2024.
However, the primary motivation for this issuance is not a need for foreign capital, given China's substantial foreign exchange reserves and its status as a major holder of US Treasuries. Instead, these issuances serve as a strategic tool to promote the internationalization of the Renminbi.
China raised USD through Eurobonds and recycle the amount raised into lending programs for countries facing USD shortages, particularly those involved in China's Belt and Road Initiative (BRI). Many BRI partner nations have depleted their dollar reserves due to global economic pressures, such as rising U.S. interest rates and commodity price volatility, which can exacerbate debt crises in emerging markets. China is now pushing repayment terms to be structured to by RMB settlements, thereby reducing reliance on the USD. This approach not only bolsters geopolitical ties but also advances China's long-term ambition of elevating the RMB's status in the international monetary system.
A concrete example is Argentina. Starting in 2023, Argentina has been repaying portions of its debts to the International Monetary Fund by RMB. Through a currency swap agreement with China, Argentina converted part of its USD obligations into RMB payments.
China's strategy of issuing USD bonds and repurposing the funds has ripple effects on global financial dynamics, particularly for developing nations. By offering USD loans with flexible RMB repayment options, China helps these countries avoid default risks. This provides an alternative to Western-dominated financial institutions, potentially reducing the influence of the USD in international debt markets. While the dollar remains unchallenged as the primary global reserve currency, China is challenging the dollar hegemony and strengthening its relationship with countries that do not benefit from the hegemony.
Chinese issuances of Eurobonds can establish a benchmark with a lower yield and therefore lower the cost of capital of Chinese corporations seeking offshore funding. Chinese enterprises issuing USD bonds typically price their debt as a spread over the risk-free sovereign yield. With yields at 3.646% for 3-year and 3.787% for 5-year Chinese sovereign bonds that are on par with U.S. Treasuries, Chinese corporates can reduce premiums and therefore borrow at tighter spreads.
For example, state-owned enterprises or tech giants expanding internationally could see borrowing costs drop by 0.5-1% or more, freeing up capital for investment. Additionally, the high oversubscription demonstrates global appetite for Chinese assets, potentially attracting more foreign direct investment and easing access to dollar funding for private sector growth.
As the world's largest offshore RMB clearing centre, with the deepest pool of RMB liquidity outside the mainland, Hong Kong benefits from the ongoing internationalization of the Renminbi.
As the issuance of Chinese sovereign Eurobonds will pave the way for more Chinese enterprises to tap into offshore USD funding via Hong Kong’s robust capital markets.
Also, the issuance will further expand the use of RMB, a growing number of countries are either considering or have already carried out their debut Dim Sum bonds issuance. Hong Kong should strive to play a central role at the beginning stage of sovereign Dim Sum bonds market. Photo: Wenweipo (2025)