(MENAFN) A significant shift in the global finacial landscape is underway as the yuan, China's currency, outpaces the euro as a major trade-funding currency. International companies are experiencing unprecedented profitability by leveraging yuan-denominated bonds and tapping into low-interest loans from Chinese lenders, presenting a stark contrast to the escalating costs associated with Western banks, as reported by Reuters on Friday.
The trend is fueled by the issuance of "panda" and "dim sum" bonds, denominated in yuan, by international companies and banks. These entities are capitalizing on record amounts of cash raised through these bonds, taking advantage of the favorable borrowing conditions in China. The depreciating yuan, coupled with rate cuts, has made borrowing costs significantly cheaper for companies involved in the country's burgeoning borrowing market.
Fiona Lim, Senior FX Strategist at Maybank, highlighted that while the fundamental story may not be compelling for Chinese investors seeking growth, the yuan's depreciation and interest rate cuts contribute to a more attractive borrowing environment. This has propelled the yuan to become the world's second-largest trade funding currency, surpassing the euro in this crucial financial metric.
The National Bank of Canada's recent issuance of a three-year panda bond worth 1 billion yuan (USD138.6 million) in October at a coupon rate of 3.2percent, lower than the domestic interest rates at 4.5percent, exemplifies the growing prominence of the yuan in international finance.
The People's Bank of China (PBOC) has actively promoted this trend, encouraging Chinese banks to lend to international companies and facilitating the broader use of the yuan outside China. The PBOC's efforts are reflected in the steadily increasing role of panda bonds in promoting the renminbi's function as a funding currency, signaling China's aspirations to enhance the yuan's share in global funding.
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