China is launching a new fundraising round in Europe, aiming for a maximum of 4 billion euros through two lots of government bonds issued in euros. The Ministry of Finance has begun offering 4-year and 7-year bonds, with spreads of approximately 28 and 38 basis points over mid-swap, respectively. Demand is very strong, with orders exceeding 50 billion euros by midday in Hong Kong, following a recent issuance of 4 billion USD which was also oversubscribed.
The euro issuance allows China to expand its yield curve and create a reference benchmark for domestic companies to raise international capital, while also diversifying funding sources as global investors seek safe assets and better yields. However, domestically, public spending is declining, land revenue is weak, and the budget deficit has increased to 8.6 trillion yuan, with most new debt being used to refinance old debt rather than to promote growth.
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