China Plans to Sell Dollar Bonds in Saudi Arabia as Ties Deepen

China is planning to sell dollar bonds in Saudi Arabia next week, its first debt issuance in the US currency since 2021.

The Ministry of Finance will sell up to $2 billion of notes in the week of Nov. 11 in Riyadh, it said in a statement on Tuesday. It last sold dollar bonds in October 2021, data compiled by Bloomberg show.

China’s plan to sell dollar debt in Saudi Arabia may be a part of its effort to boost economic and financial-market ties with the nation.

Mutual investments between the two countries has increased since Chinese President Xi Jinping’s 2022 visit to Riyadh. China’s biggest steel-maker doubled investment in Saudi, while the latter’s wealth fund acquired stakes in some Chinese firms including Lenovo Group Ltd. Two exchange-traded funds tracking shares in Hong Kong and China debuted in Saudi Arabia last month.

A symbolic move

“It is a largely symbolic move aimed at improving the cooperation between China and Saudi Arabia in the financial services industry,” said Lynn Song, Greater China chief economist at ING Bank N.V. Cheaper yuan funding may provide limited incentive for the government to raise dollars in a significant size, he added.

It remains to be seen how overseas investors view the upcoming debt sale in Riyadh. Over the last two decades, China’s dollar-denominated sovereign bonds were issued in Hong Kong, according to data compiled by Bloomberg.

China may tap the dollar bond market again next year to refinance maturities and as dollar funding costs may trend lower with the Federal Reserve’s easing cycle, said Zerlina Zeng, head of East Asia corporate research at Creditsights Singapore LLC.

The nation may also “continue diversifying its foreign debt funding to other Group-of-10 and emerging market currencies or offshore yuan as a continued funding decoupling from the dollar,” she added.

China issued 2 billion euros of notes in Paris in September, its first euro-denominated bond sale in three years. The bond sales follow a raft of measures from Chinese authorities to bolster the economy and as a policy pivot from major global central banks helped lower risk premiums.