China To Issue $2B Dollar Bonds In Saudi Arabia As De-Dollarization Efforts Accelerate

(November 6, 2024 - Jordan Finneseth)

(Kitco News) – The U.S. dollar surged to its highest level since July following Donald Trump’s re-election as his America-first philosophy is expected to support the USD, but the trend of de-dollarization by non-western countries continues, with China leading the charge.

According to a statement released by China’s Ministry of Finance, they plan to sell $2 billion in dollar-denominated bonds in Saudi Arabia next week, once the state council’s approval has been granted.

“With the approval of the State Council, the Ministry of Finance will issue US dollar sovereign bonds in Riyadh on the week of November 11, 2024, with a scale not exceeding US$2 billion,” a translation of the statement read. “The specific issuance arrangements will be announced separately before the issuance.”

This marks a notable change in the recent status quo, as it has been three years since the last time China issued dollar bonds in Saudi Arabia. The move is expected to help the Chinese government open its financial sector to global investors.

It also highlights the strengthening relationship between China and Saudi Arabia, with analysts saying the selection of Saudi Arabia as China’s preferred country for debt issuance in dollar bonds demonstrates their commitment to strengthening multifaceted alliances.

Previously, Mohammed bin Salman, Saudi Arabia’s crown prince, said that he wants Chinese investments to facilitate his 2030 vision of modernization and help reduce the country’s dependence on oil revenue. He also sees the collaboration as elevating Saudi Arabia’s standing on the global stage.

At a high-level Saudi-Chinese committee meeting in September, which was co-chaired by bin Salman and Chinese Premier Li Qiang, the parties focused on discussions regarding investment, energy, trade, and security and laid the foundation for enhanced collaboration between the different sectors.

In October, Saudi Arabia’s minister of tourism, Ahmed al-Khateeb, also met with Chinese officials to discuss expanding tourism in the kingdom.

According to Wang Peng, an associate at the Bejing Academy of Social Sciences, the new issuance can help boost confidence in China's economy and sovereign credit among overseas markets while providing a new way for the Chinese government to raise funds.

Peng told the Global Times that since the USD “remains a solid international reserve currency, issuing US dollar bonds can attract more international investors and reduce financing costs, while the move will offer the Chinese government a new and relatively low-cost method for fundraising.”

He added that the bond issuance “will enhance the opening-up of China's financial sector for global investors to better understand and invest in the country. The issue will also facilitate the accumulation of sovereign credit data and improve China's sovereign credit rating system.”

With the sale of up to $2 billion of notes in Riyadh, Wang said he anticipates further strengthening of financial cooperation between China and Saudi Arabia as well as between China and the Middle East region.

Further evidence of the deepening relationship came on October 30, when the first Saudi exchange-traded fund that tracks Hong Kong stocks was listed on the Saudi Stock Exchange in Riyadh.

According to Peng, there are several sectors with the potential for cooperation, such as currency swaps and settlements, expanding the opening-up of financial markets, financial regulation, and green finance.

“Issuing offshore sovereign bonds is an important option for China to diversify the ways it uses to attract investment, and it shows that overseas markets highly recognize the country's economy and assets,” said Dong Shaopeng, a senior research fellow at the Chongyang Institute for Financial Studies at Renmin University of China.”

According to Talat Hafiz, a Saudi-based economist, the issuance would also boost Saudi’s financial market and the financial development program will play a key role in restructuring the Kingdom’s financial sector.

“The issuance is part of China’s efforts to strengthen the relationship between the two friendly countries, which is witnessing huge improvements in several fields,” Hafiz said.