Chinese banks are facing some competition from local governments in the domestic bond market after Beijing allowed them to issue up to 2 trillion yuan ($322 billion) worth of municipal bonds so they can retire their more expensive, older debts.
Due to the massive funding needs of local governments, borrowing costs remained relatively high even if the central bank – the PBOC – has lowered rates three times since November.
To help deepen Taiwan’s debt market, mainland banks would be allowed to sell directly yuan-denominated bonds in Taipei, otherwise known as formosa bonds, according to Reuters, citing people famliar with the matter.
Previously, only their foreign branches can tap the formosa bond market.
Allowing more issuers to issue Formosa bonds will also give investors in Taiwan more outlets for their renminbi funds, while easing funding congestion at home.
Even before the government announces the new rule, Reuters reported that state-owned China Development Bank is planning to offer formosa bonds this year.
Photo credit: Jason Wesley Upton via Flickr