China's offshore renminbi market’s volume and issuer base in 2015 are expected to grow, along with increasing issuance of local government bonds and auto loan asset-backed securities in the onshore market, according to Moody's Investors Service.

 

"The evolution of the renminbi into an international reserve currency is driving volume growth and diversification in the offshore renminbi bond market," says Ivan Chung, a Moody's senior vice president, adding "We expect offshore renminbi bond issuance to grow even as the USD strengthens and China's onshore interest rate falls."

 

"In China's onshore RMB market, we identify regional and local governments bonds and asset-backed securities as strong growth drivers," adds Chung.

 

In the offshore market, Moody's expects more regional state-owned enterprises and Chinese non-bank financial institutions will make their debut issuance as they expand funding channels. In addition, it expects more foreign sovereign and sub-sovereign issuers will tap the offshore renminbi bond market in efforts to boost the offshore renminbi centres in their home countries.

 

At the same time, the falling onshore interest rate will reduce incentives for Chinese issuers to access the offshore market. Moody's expects the impact will be more significant for Chinese high yield issuers, which typically pay lower interest rates in the onshore bond market.

 

Nevertheless, limited access to onshore funding and the weakening attractiveness of the USD high yield market due to strengthening USD will continue to drive high yield property developers to tap the offshore renminbi bond market.

 

In the onshore market, Moody's expects increased issuance from regional andlocal governments (RLGs) on the back of government reforms that have enabled high-tier RLGs to borrow directly from the bond market to fund public projects.

 

Moody's also expects the asset-backed securities (ABS) market to continue its fast growth momentum in 2015. In particular, it expects to see more auto ABS transactions to satisfy the growing funding needs of auto loan lenders in China's fast-growing car market.