China to Issue RMB Sovereign Bonds in Canada for the First Time

Against the backdrop of steadily warming relations between the two countries, China will issue RMB sovereign bonds in Canada for the first time.

The Ministry of Finance announced on its official website on Thursday (November 5) that, with the approval of the State Council, it will issue RMB green sovereign bonds in Canada during the week of November 9 this year, with a scale of no more than RMB 4 billion (S$769 million).

Specific issuance arrangements will be announced separately before the issuance.

According to Bloomberg, China's Ministry of Finance began issuing RMB government bonds in Hong Kong in 2009 and expanded issuance beyond Hong Kong for the first time in 2016, issuing RMB 3 billion of government bonds in London.

Once this issuance is completed, Canada will become another offshore market for China's RMB sovereign bond issuance after Hong Kong, London and Macao, helping to expand the investor base for RMB assets in North America.

Zhao Zhixuan, chief FX strategist for emerging markets at Bloomberg Intelligence, said that since the beginning of this year China has noticeably stepped up efforts to promote the offshore RMB, with its application scope extending from the FX and interest rate markets to the commodities sector, and promoting offshore RMB bond issuance is a logical step.

In his view, this reflects China's clear intention to promote the circulation of the RMB at home and abroad and reduce dependence on the US dollar, although the latter may be reflected more in increased use of the euro.

This issuance coincides with a warming of China-Canada economic and trade relations, and the choice of Canada as the issuance location may reflect efforts by both sides to further deepen trade and financial ties.

Canada and China agreed this week to extend their preliminary joint economic and trade arrangement to the end of 2028, including extending preferential market access measures for some Canadian agricultural and aquatic products.

Zhang Shuxian, a strategist at OCBC Bank in Singapore, noted that although the issuance location does not limit the scope of investors, issuing RMB bonds in Canada may help raise local investors' awareness of and attention to RMB products.

These investors may not have previously actively participated in the offshore RMB market.

The RMB bonds issued this time are green bonds, which are also expected to add more RMB-denominated high-grade green asset options for overseas investors.