The following is an excerpt from Chris Anstey and Narae Kim | July 29, 2018 | Bloomberg.com |
China used to rail against the outsize role of the U.S. dollar. But in a major turnaround, the world’s second-biggest economy has started embracing the currency of its larger rival.
Chinese companies and banks—and even the government—sold bonds denominated in dollars at a record pace last year, and underwriters expect that growth to continue for years. The roughly half-trillion-dollar market has two key attractions for China’s borrowers. For some, it’s an easier place to raise cash than at home—where regulators are cracking down on leverage. For others, dollars are simply easier to use to fund acquisitions and investments abroad.
The upshot: There’s a large and growing supply of dollar securities that offer exposure to Chinese companies for investors wary of diving into the country’s increasingly accessible yuan-denominated domestic debt. The offshore bond market is also set to provide a stake in President Xi Jinping’s “Belt and Road” initiative (BRI)—a grand plan that envisions deepening trade and investment ties with countries across the Eurasian landmass and beyond. Bankers see the BRI as a key source of growth in Chinese dollar bonds.
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