China expected to dominate regional market

China will dominate the region's US dollar-denominated debt markets next year as economic growth driven by domestic consumption boosts energy and real estate bonds, according to Pacific Investment Management Co (Pimco), the manager of the world's biggest bond fund.

Companies on the mainland and in Hong Kong have sold US$52.7 billion of notes this year, or a record 50 per cent of all US dollar securities in Asia outside Japan, the first time a single country has captured half of the region's US currency market in data dating back to 1999.

The yield premium on debentures from the mainland has shrunk 46 basis points in the past 12 months to 378 basis points, compared with a jump of 17 basis point for Asian credits, according to JP Morgan Chase.

"It's clear that the credit market's expansion will be driven from China," said Raja Mukherji, the Hong Kong-based head of Asian credit research at Pimco. "There are innumerable opportunities in China but investors have to differentiate between the Chinese credits. Fund managers really need to do their credit checks to assess whether they're being paid to take on the risk."

With urbanisation boosting spending and personal incomes growing, retail and consumer companies on the mainland were expected to sell more bonds next year, Pimco said in report last week.

Premier Li Keqiang is seeking to achieve a target of 7.5 per cent growth for this year, while cracking down on excessive borrowing by local governments, polluting industries and luxury property developers.