CandleFocus

Dim Sum Bond

Dim sum bonds are an important part of the growing internationalisation of the Chinese Renminbi (RMB). As of December 2020, there was over RMB 475 billion (US$ 71 billion) of outstanding dim sum bonds issued by Chinese entities. This represents a substantial and growing share of the Chinese bond market (RMB 39.9 trillion, US$ 6.1 trillion) and highlights the importance of dim sum bonds in the global bond market.

In general terms, dim sum bonds are denominated in the Chinese currency, the Renminbi, but are issued outside the mainland. This allows the Chinese government to loosen its control over the Chinese financial market while still controlling capital flows in and out of the country. The Chinese government can also afford foreign investors access to capital without allowing major capital flows into the country .

The growing popularity of dim sum bonds reflects investors’ appetite for an alternative source of yield, as well as their eagerness to access the lucrative Chinese bond market. Investors considering these bonds should be aware that the integrated Chinese bond market offers a variety of instruments for foreign investors, such as dim sum bonds, Panda bonds, Green bonds and Certificates of Deposit (CDs).

Dim sum bonds also offer several advantages to foreign issuers. By issuing these bonds, corporate entities can access capital from foreign investors without subjecting themselves to the same scrutiny and reporting requirements in the mainland bond market. In addition, since these bonds are not subject to Chinese regulation and supervision, local financial advisors may be more involved in the offering process and corporate bonds can be traded more freely in the secondary market.

As the Chinese bond market expands, so does the availability of dim sum bonds. With more companies and countries looking to take advantage of the opportunities offered by these bonds, investors should do due diligence to ensure that their investments are sound. A thorough understanding of the Chinese market and its particular features is essential for successful investments in these bonds and other Chinese-denominated instruments.

In conclusion, dim sum bonds provide an attractive option to gain exposure to the Chinese bond market while circumventing some of the regulatory and financial limitations of the mainland Chinese system. This can help open up financing capabilities to foreign entities looking to take advantage of the lucrative opportunities in this vast and rapidly growing market. As the financial sector in China continues to expand, so too will the potential of dim sum bonds as a means of accessing foreign capital in a controllable and cost-effective manner.

Glossary Index