In its yuan credit market, China has recently raced ahead of the US for corporate bond sales, a remarkable change that emphasizes the growing influence of the two nations’ divergent monetary policies.
According to statistics, non-financial companies issued more bonds in yuan than in dollars in both July and August, marking a first for two consecutive months. Since the Federal Reserve began its tightening cycle in March, momentum has begun to increase: In contrast to the $283 billion in global dollar debt, sales of yuan notes, virtually exclusively by Chinese companies, totaled 2.04 trillion yuan ($306 billion based on exchange rates at the time of deals) between April and August.
Attempts to Fight Inflation
The US central bank’s continuous battle to fight inflation has led to a sharp decline in dollar debt sales, while Beijing has been acting in the other direction to keep finance costs low for a faltering economy. Even while it lowers the dollar value of local bonds, the tendency is also encouraged by the yuan’s deterioration.
The most recent occurrence, however, continues to serve as a reminder of the sheer scale and weight of China’s economy rather than, at least for the time being, the currency’s appeal abroad given the still negligible foreign exposure to yuan corporate notes. According to Gary Ng, a senior economist at Natixis SA, the increase of yuan corporate debt underscores the divergence of monetary policy between the US and China, and more significantly, liquidity is king. However, because Chinese companies continue to issue the majority of yuan bonds, the yuan is still a long way from threatening the dollar’s dominance.
As the Fed continued to raise interest rates, dollar corporate bond sales have fallen by roughly 40% this year, reaching an 11-year low of $592 billion as of September 6 with 76% of them coming from US companies. Yuan notes have decreased in issue by around 6%, in comparison. Yuan corporate bond issuance had seldom exceeded that of the dollar until this year, and the few times it had largely happened in December because of the slowdown brought on by Christmas.