Yuan debt sold on the mainland and in Hong Kong grew 23 per cent in the first six months of this year as Chinese firms loaded up on borrowings from investors wanting exposure to the rising currency.
According to Thomson Reuters, yuan-denominated bonds led local-currency debt ahead of the Australian dollar, South Korean won, Indian rupee and Malaysian ringgit in the league table for Asia excluding Japan.
Asian currencies have rallied and major currencies in Asia are likely to stay elevated against the US dollar, according to analysts at Commerzbank. This is because inflation is still a major concern for central banks and governments in Asian markets such as China and South Korea where more interest rate rises are expected, which could speed up the appreciation of the currencies.
Yuan bonds, including those that were sold on the mainland and in Hong Kong's offshore market, grew 23 per cent to US$93.8 billion from US$76.3 billion in the first half of last year.
A total of 73 billion yuan (HK$87.89 billion) worth of bonds have been sold on the Hong Kong offshore debt market so far.
The mainland's capital market is not accessible to overseas investors unless they are qualified to trade. Thus, the Hong Kong yuan bond market has become the main venue for both cash-hungry international and Chinese firms to raise capital to fund their businesses.
The growth of yuan debt also has been driven by the fund-raising needs of larger overseas corporations, such as Global Logistic Properties from Singapore and Germany's Volkswagen.
Both companies have chosen to tap Hong Kong's yuan bond market for cash because the level of interest payments to bondholders are lower than if they were to sell the bonds in their respective home currencies.
Mainland firms that are not as creditworthy have had problems raising capital in both the international and offshore yuan bond markets despite the appeal of the yuan to investors and the record-high interest they pay to bondholders.
A recent sell-off in euro and US-dollar-denominated Chinese high-yield credits was triggered by allegations of frauds relating to companies such as Canadian-listed mainland timber firm Sino-Forest Corp.
Debt-heavy mainland real estate developers, which are more at risk of not meeting their interest payments if property sales further slow, have had to pay up to 15 per cent annual interest in the US dollar bond market.
Sunac China Holdings, which joined the Hong Kong stock exchange in October last year, scrapped a bond sale in March. Instead, it borrowed at least 1.15 billion yuan from mainland trust companies to finance its projects in Beijing and Chongqing, paying the lenders a hefty interest of 17 per cent.