China plans to launch a bond issuance of 60 billion yuan (approximately 7.93 billion euros), marking the largest such issuance through Hong Kong to bolster the renminbi exchange rate.
In a statement released today, the Hong Kong Monetary Authority, the financial regulator of the semi-autonomous region, announced that these bonds will have a maturity of six months.
Financial news agency Bloomberg noted that this represents a record amount for such auctions conducted by the People's Bank of China since they began in 2018, emphasizing that the institution aims to absorb the currently available yuan in the market, thereby generating demand for the currency.
“The liquidity absorption will likely limit offshore yuan financing in the short term, but the strength of the US dollar and ongoing tariff uncertainties will likely continue to pressure the yuan downward,” stated Wee Khoon Chong, an analyst at BNY Investment Bank.
The People's Bank of China has not resorted to bond issuances to support the currency since 2023, and tightening liquidity expectations in Hong Kong have caused renminbi financing costs to reach their highest levels since mid-2021.
In recent months, the central bank has repeatedly set official exchange rates stronger than anticipated—against which the onshore rate can only fluctuate by a maximum of 2% per day—to defend the currency, also publicly committing to maintaining exchange rate stability.
This week, the renminbi approached its lowest value since late 2007.
From mid-2024 until the end of September, the value of the Chinese currency showed an upward trend, driven by expectations of interest rate cuts in the United States and significant extensions of economic support measures in China, following a recovery that has fallen short of expectations post-COVID-19.
However, the trend reversed amid investor disappointment with stimulus measures announced by Beijing and the electoral victory of Republican Donald Trump in the US, who initiated a trade war against China during his first term and promised to impose new tariffs on imports from the Asian country.
Analysts estimate that Beijing may allow a depreciation of the renminbi to cushion the impact of rising tariffs.
Oxford Economics projected that China may permit a depreciation between 20% and 25% if Trump follows through on his promise to raise tariffs to 60%, although a more realistic scenario sees tariffs rising from the current average of 17% to 30%, which would translate to a value loss of between 6% and 8% for the Chinese currency.