Photo: VCG

A planned offshore euro-denominated sovereign bond, the first in 15 years, will expand the Ministry of Finance's (MOF) revenue amid domestic economic pressure and may signal China's willingness to increase assets denominated in currencies other than the US dollar, Chinese experts said on Thursday.

The move to issue sovereign debt in the EU, with no word of any issue in the US, shows that China is reducing its exposure to the US, as the trade war initiated by the latter enters its 15th month. 

Bank of China Ltd said on Wednesday that it will assist the MOF with an issue of euro-denominated sovereign bonds after a 15-year hiatus. The remarks were made by the lender in a post on its official website.

The news had little impact on the bank's shares in Shanghai, which edged up 0.27 percent to 3.7 yuan ($0.53). 

"The ministry's revenue is squeezed by government efforts to cut taxes and fees. Simultaneously, there is a need to increase spending under a proactive fiscal policy," Xi Junyang, a professor at the Shanghai University of Finance and Economics, told the Global Times on Thursday.

China's third-quarter GDP growth reached a multi-year low of 6 percent. China cut 1.5 trillion yuan in taxes and fees in the first eight months, according to media reports in October.

The MOF issued sovereign bonds valued at 1 billion euro and $500 million in 2004. The euro-denominated 10-year bonds had a return of 4.25 percent, according to a report on financial news outlet yicai.com.

The dollar-denominated bond issued that year had a return of 3.75 percent.

The amount and target yield and timing of the new eurobond are not known yet. But 21jingji.com, a domestic financial news site, said the scale of the issue is expected to be "billions of euros." A dozen domestic and foreign banks will also take part in the issue. 

Dong Dengxin, director of the Finance and Securities Institute at Wuhan University of Science and Technology, told the Global Times Thursday that the issuance of eurobonds could be a signal that China hopes to reduce the proportion of US dollars in its reserves and companies planning offshore issuance in foreign currency may follow this hint.

China has cut nearly $90 billion from its US Treasury holdings since June 2018. 

China issued a tranche of dollar-denominated bonds valued at $2 billion in October 2017 and then another tranche valued at $3 billion in October 2018.

The dollar-denominated bond issue by the MOF were well-received in the market, 21jingji.com reported.

Xi Junyang said that the new bonds are expected to be favored by global investors. 

"Investors also see reality. In reality, China is one of the best countries in the world in paying its sovereign debt."