Hong Kong's Yuan Bond Market Grows to $284 Billion, Driven by US Banks and Tech Firms

Hong Kong's offshore yuan bond market is becoming a more important funding source for global banks, with US lenders leading issuance growth despite a narrowing cost advantage. The expansion reflects evolving financial ties between Wall Street and China despite geopolitical tensions. Access to China's capital increasingly attracts US banks, rather than cheaper borrowing.

Bank of America (BofA) Global Research reported on Wednesday that offshore yuan bond issuance reached 774 billion yuan (US$116 billion) as of October 20. The report put the increase at 68% from a year earlier. Financial institutions supplied 57% of the total, according to the report. The report showed that issuance by financial institutions rose 139% year on year. Offshore yuan-denominated bonds are known as dim sum bonds.

Foreign financial institutions issued 333 billion yuan of bonds, an increase of 169% from a year earlier. That amount exceeded twice the average annual issuance by foreign financial institutions between 2022 and 2025. US banks led the growth, raising 167 billion yuan, an increase of 130 billion yuan from a year earlier. BofA said US global systemically important banks raised the equivalent of US$22 billion through offshore yuan bonds this year. BofA said the yuan overtook sterling as those banks' third-largest funding currency, behind the US dollar and euro.

However, BofA said currency-hedged yields on three-year yuan government bonds were only about 0.1 percentage points below comparable US Treasury yields at September's end. BofA said the expansion of offshore capital from China had fundamentally altered the reasons for issuing yuan bonds. The report put China's offshore US dollar bond market at about US$400 billion after a contraction from the market's 2021 peak. The contraction occurred amid a collapse in property-sector issuance and corporate deleveraging. BofA said outstanding dim sum bonds reached 1.9 trillion yuan, or about US$284 billion. BofA said that market had nearly quadrupled since the end of 2021 and reached about 70% of China's offshore dollar bond market.

Demand from mainland investors is helping the market expand. BofA said holdings through southbound Bond Connect reached 1 trillion yuan at the end of August, an increase of 85% year on year. The increase followed authorities allowing more institutional investors to participate. Southbound Bond Connect gives mainland investors access to Hong Kong's offshore bond market. Nearly 30% of dim sum bonds issued this year had an average life longer than seven years.

China's technology companies are also using the market to fund artificial intelligence investment. Offshore yuan issuance by those companies reached 57 billion yuan this year, roughly matching the companies' US dollar bond issuance. BofA estimated that China would require US$1.5 trillion in AI-related capital expenditure between 2026 and 2030, including about US$900 billion by major internet platforms. The report said more than 75% of technology-sector yuan bonds issued this year had maturities longer than seven years.

Further growth depends partly on Beijing's willingness to widen channels for mainland capital to move offshore. Authorities increased the annual southbound Bond Connect quota from 500 billion yuan to 800 billion yuan after the earlier limit was almost exhausted. BofA said the new quota represented more than 40% of the existing dim sum bond market, making policy decisions important to future expansion. BofA argued that continued offshore yuan market growth was no longer in question, but the pace of regulatory permission for larger offshore capital pools was.