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Chinese Local Government Vehicles Set Record in Offshore Yuan Bond Sales Amid Domestic Restrictions

by Team Lumida
December 19, 2024
in Macro
Reading Time: 3 mins read
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China’s Financial Overhaul: Xi’s Strategy to Rebalance $9.1 Trillion Debt Crisis
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Key Takeaways:

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• Record 163.6 billion yuan ($22.5 billion) raised through dim sum bonds in 2024
• Average coupon rates reach four-year high of 5.82%
• Onshore bond issuance down 13% year-over-year
• Regulatory restrictions driving shift to offshore markets

What Happened?

Chinese local government financing vehicles (LGFVs) have achieved record-breaking offshore yuan bond issuance in 2024, raising 163.6 billion yuan through dim sum bonds. This unprecedented level of offshore fundraising comes as these entities face tighter domestic financing restrictions.

The average coupon rate has climbed to a four-year high of 5.82%, more than double the rate of their mainland China bonds, yet still more attractive than dollar-denominated debt alternatives.

Why It Matters?

This shift in financing patterns reveals a significant regulatory arbitrage situation in China’s debt markets. While Beijing attempts to control LGFV debt risks through domestic restrictions and a 10 trillion yuan debt swap program, these entities are finding alternative funding channels offshore.

The trend highlights the challenges in implementing comprehensive debt control measures, particularly for lower-rated LGFVs with domestic ratings of AA+ or below, who face increasingly limited onshore financing options. This situation underscores the complex balance between maintaining financial stability and managing local government funding needs.

What’s Next?

The market will closely monitor Beijing’s response to this offshore funding surge, particularly whether new regulations might emerge to address this regulatory arbitrage. The success of the domestic debt swap program and its impact on LGFV financing needs will be crucial. Investors should watch for potential changes in offshore funding costs and any new policy measures that might affect either onshore or offshore markets.

The sustainability of this financing model, especially given the higher coupon rates, will be a key consideration for both issuers and investors. Additionally, the market will need to assess whether this trend represents a temporary solution or a longer-term shift in LGFV financing strategies.

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© 2025 Lumida Wealth Management LLC is an SEC registered investment adviser. Privacy Policy. Cookies Policy.
Disclaimer Important Information This site is for informational purposes only. Information presented on this site does not constitute as investment advice.

Lumida Wealth Management LLC (‘Lumida”) is an SEC registered investment adviser. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability.

Lumida's website (referred to herein as the "Website") is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of the Website on the Internet should not be construed by any client and/or prospective client Lumida’s solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet.

Any subsequent, direct communication by Lumida with a prospective client will be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.

‍Lead Capture Forms: By submitting your contact information in the forms on this site, you are not obligated to invest in Lumida's product or services.
‍Address: Lumida Wealth Management, 25 W 39th Street Suite 700, New York, NY 10018