Dollar loans to Chinese borrowers have cratered this year, thanks to both a decline in demand and increased wariness among lenders amid escalating United States (US) - China tensions.

Syndicated dollar loan issuance to Chinese borrowers has tumbled 62 per cent from the start of the year through May 17, to $7.3 billion. That is the lowest level since 2012.

Volume is unlikely to rebound any time soon, said Fang Lei, a Hong Kong-based managing director of Asia Pacific debt origination and advisory at Credit Agricole SA. Some companies are sitting on the sidelines watching the US-China trade war.

Many instead are turning to domestic funding, taking advantage of policy makers moves to bolster credit growth as Chinas economy slows. Yields on weaker companies bonds have fallen near the lowest in 30 months, luring issuers including developers back home for funding. Local corporate-bond issuance has jumped 33.5 per cent so far, to a record high of 4.4 trillion yuan ($637.3 billion).

A weakening exchange rate has also enhanced the appeal of yuan borrowing, and raised the risk of servicing overseas debt. Dollar-bond issuance has also slowed this year, though not by as much as in the loan market. Chinese entities dollar-note sales are only 4.9 per cent down on last year.

Meanwhile, the prolonged trade dispute has reduced the incentive for manufacturing investment, amid fear Chinese products will be subject to additional tariffs. Banks have turned cautious, according to Steve Wang, Hong Kong-based deputy head of research at BOC International Holdings Ltd.

Economic uncertainty has been holding back Chinese companies from significant spending plans and in turn has dampened demand for offshore loans, said Benjamin Ng, head of Asia Pacific debt syndicate and acquisition finance group at Citigroup Inc in Hong Kong.

Related Topics
comment COMMENT NOW