Low interest rates have sparked a global rush to borrow in China, the outlet has said
Global companies are reaping record profits through yuan-denominated bonds and are borrowing heavily from Chinese lenders at low interest rates, at a time when the cost of using Western banks is skyrocketing, Reuters reported on Friday.
According to the news agency, international companies and banks are raising record amounts of cash through Chinese ‘panda’ and ‘dim sum’ bonds denominated in yuan.
“While the fundamental story is not compelling for Chinese investors looking for growth, the depreciation of the yuan as well as the rate cuts result in a much cheaper cost of borrowing,” said Fiona Lim, senior FX strategist at Maybank.
The uptick in China’s borrowing market has made the yuan the world’s second-biggest trade funding currency, ahead of the euro. The development reflects Beijing’s ambitions to boost the yuan’s share in global funding, Reuters added.
According to the report, the National Bank of Canada raised 1 billion yuan ($138.6 million) in October from the sale of a three-year panda bond at a coupon of 3.2%, while domestic interest rates stood at 4.5%.
The People’s Bank of China (PBOC) has been encouraging banks to lend to international companies and has allowed broader use of the yuan outside the country, the outlet said.
“Panda bonds are steadily promoting the renminbi’s function as a funding currency,” the PBOC stated in a report last month.
The Chinese yuan showed record gains in September as its share in international payments surged to 5.8%, up from 3.9% at the beginning of the year, outperforming the euro for the first time, data from SWIFT revealed.
The growing share of the yuan in cross-border transactions reflects China’s trend of shifting away from the US dollar, as well as Beijing’s efforts to promote the use of its national currency.