1 Beijing’s steady issuance of sovereign bonds facilitates its push for non-kinetic expansion
The PRC Ministry of Finance issued $4 billion in sovereign bonds in Hong Kong on Nov. 5, marking the first such sale since 2023. The transaction split evenly between a $2 billion 3-year note at 3.646 percent and a $2 billion 5-year at 3.787 percent, achieving spreads of 0 to 2 basis points over comparable U.S. Treasuries — the narrowest margin ever recorded for Chinese sovereign dollar debt.
The MOF’s bond sale attracted over $118 billion in orders, nearly 30 times the issuance size. Buyers included multiple Asian central banks, long-term institutional investors, and global funds, with Asian demand remaining dominant.
Mainland and international media reports said that the near-Treasury pricing of the sovereign bonds was seen by markets as evidence of the resilience of China’s sovereign credit despite globally high interest rates. Underwriters noted that foreign demand for Chinese government bonds could rise further if global rates continue to decline.
This issuance was the PRC’s first return to a major offshore dollar market following the extension of the one-year U.S.–China trade truce framework after the Trump-Xi summit in Busan. The move is viewed as an important step for Beijing to maintain offshore financing access and to refine its offshore yield curve.
Concurrently, the MOF announced plans to issue up to €4 billion in euro-denominated sovereign bonds in Luxembourg in late November, signaling a broader multi-currency funding strategy.
Backdrop
Since launching its offshore sovereign bond program in 2004, the PRC has built a multi-currency issuance footprint now totaling tens of billions of dollars. Early transactions carried spreads of 30 to 80 basis points over comparable U.S. Treasuries. Today, that premium has compressed to single digits.
Issuances typically cluster in October and November, executed across strategic offshore hubs including Hong Kong, Saudi Arabia, and Luxembourg. The PRC’s focus remains on intermediate tenors of 3 to 10 years.
Our take
The near-zero spread on the PRC’s latest dollar sovereign bonds, hugging the US Treasury curve, signals that investors are reassessing China’s sovereign credit and, within the existing dollar financial architecture, constructing a more authoritative offshore yield curve for Beijing. This shift dovetails with a decade of policy narratives — encompassing infrastructure diplomacy, supply-chain investment, trade-settlement reforms, and renminbi internationalization.
Beijing’s latest bond issuance appears to be part of a broader move by the CCP to expand its global influence through non-kinetic means such as financial leverage, infrastructure, technology standards, and supply chain interdependence.
1. The latest market pricing of China’s sovereign U.S. dollar bonds indicates that investors no longer demand the traditional emerging-market risk premium. Instead, they are treating China as a near high-grade sovereign issuer. This development will undoubtedly accelerate the process of RMB internationalization.
The standout feature of the PRC’s $4 billion sovereign dollar bond issuance is not its size, but its pricing. Relative to U.S. Treasuries, the spread on the 3-year tranche stands at a mere 0 to 1 basis points (bps), while the 5-year paper carries just 2 bps. In effect, global investors are now pricing Beijing’s dollar repayment capacity as virtually equivalent to Washington’s — a structural inflection point for the CCP’s push to internationalize the RMB.
A review of China’s offshore dollar sovereign issuances from 2017 to 2025 reveals a clear, structural convergence in risk premiums:
- In 2017, the MOF issued $2 billion in Hong Kong, with 5-year and 10-year spreads ranging from 15 to 25 bps. Investors at the time viewed China as a conventional emerging-market sovereign, commanding premiums well above developed-market peers.
- By 2020, amid the global pandemic and ultra-low interest rates, China scaled issuance to $6 billion across maturities from 3 to 30 years. Spreads tightened to 12 to 30 bps, reflecting bets on China’s faster economic recovery trajectory relative to major economies.
- The PRC’s $4 billion offering in 2021 saw spreads narrow further to 8 to 20 bps, with the 3-year tranche dipping below 10 bps for the first time. This was a milestone marking China’s sovereign credit as “high-grade emerging market,” if not quasi-investment-grade.
- In 2023, another $4 billion issuance maintained 3-year and 10-year spreads at 10 to 25 bps. This was marginally wider than prior years but still near historic lows, reflecting modest risk adjustments amid economic recovery uncertainties.
- As of November 2025, China’s $4 billion Hong Kong issuance has set a new benchmark: 3-year spreads at 0 to 1 bps and 5-year at 2 bps, effectively hugging the U.S. Treasury curve. This reflects unprecedented investor confidence in China’s dollar servicing capacity.
The extreme compression in spreads stems partly from demand for diversified, high-credit, dollar-denominated assets, and aligns with China’s steady push for RMB internationalization and foreign-exchange stability.
Three macroeconomic pillars underpin this market behavior:
- China’s foreign-exchange reserves stood at $3.34 trillion as of October 2025 — the world’s largest official stockpile — providing ample liquidity backstop for sovereign dollar obligations.
- State Administration of Foreign Exchange data shows a current-account surplus for China of $489.8 billion in the first three quarters of 2025, underscoring resilient structural dollar inflows.
- Global capital is actively seeking high-credit, liquid, dollar-denominated sovereign alternatives. This positions China’s dollar bonds as an emerging portfolio alternative.
For RMB internationalization, the spread convergence delivers an unexpected credit foundation. A stable, near-Treasury dollar sovereign yield curve bolsters the appeal of offshore renminbi assets (establishing a benchmark rate for Chinese corporates’ offshore dollar bonds) and enhances the credibility of RMB-denominated trade and financial flows. Sustained market recognition of China’s dollar repayment reliability will, over the medium to long term, lend greater predictability to cross-border renminbi usage.
2. With China’s sovereign dollar bonds now trading at spreads nearly matching U.S. Treasuries, the share of RMB-denominated trade settlement is likely to expand and the PRC’s central role in global supply chains is likely to be reinforced. Beyond enhancing Beijing’s offshore funding conditions, it furnishes the RMB with a fresh “credit fulcrum” for internationalization.
People’s Bank of China data reveal that, since 2021, Beijing has renewed or established bilateral currency-swap lines with more than 40 jurisdictions, totaling over 4 trillion yuan. Concurrently, the RMB’s share in global payments has climbed from 1.9 percent in 2020 to 4.1 percent in the first half of 2025, per SWIFT.
In commodities, RMB settlement is gradually infiltrating global supply chains. As the world’s largest iron-ore importer — accounting for over 70 percent of seaborne volumes — China has catalyzed a shift. Between 2023 and 2024, roughly 28 percent of Brazil’s iron-ore exports to China switched to RMB settlement, with select African suppliers following suit. Mainland press reports indicate that BHP Billiton commenced RMB settlement on approximately 30 percent of its spot trades starting in the fourth quarter of 2025. This shift elevates the RMB from a mere payment currency toward a pricing unit. For exporting nations, RMB holdings cease to be transitory; they become reusable assets — redeemable for Chinese government securities or deployed in capital-goods purchases from Chinese manufacturers, forging a self-reinforcing “payment–investment–production” loop.
As China’s sovereign credit is re-rated within the dollar ecosystem, this confidence is spilling over into RMB settlement and supply-chain finance. With a growing array of settlement, funding, and hedging instruments denominated in RMB, trade partners’ operational reliance on China’s markets and financial plumbing deepens organically. Upstream resource exporters lean on Chinese demand, infrastructure, and financing; downstream manufacturers and consumers depend on Chinese intermediates, components, and pricing benchmarks. The result is a dual-axis dependency (financial and physical) orbiting China.
The near-Treasury spreads on China’s dollar sovereigns is therefore more than a credit event; they represent a strategic inflection. By burnishing Beijing’s standing in global capital markets, they underwrite RMB internationalization with hard-currency credibility, enlarge RMB settlement and reinvestment loops in commodities, and ultimately entrench long-term structural attachments across finance, industry, and supply chains. In essence, Beijing is leveraging dollar-denominated credit to erode dollar hegemony from within, while harnessing supply-chain integration and standard-setting to construct a medium- to long-term model of non-kinetic expansion.
2 Zhang Youxia declares loyalty to Xi in post-4th Plenum piece
On Nov. 12, Party mouthpiece People’s Daily published on its sixth page a commentary by Central Military Commission vice chairman Zhang Youxia. Titled “Promoting the Modernization of National Defense and the Armed Forces with High Quality” (高品質推動國防軍事現代化), the nearly 4,800-character article provided an in-depth exposition of the CCP’s strategic plan for advancing military reforms and improvement during the 15th Five-Year Plan period (2026 to 2030).
Zhang’s article calls for implementing Xi Jinping’s Thought on Strengthening the Military, highlighting the theme of high-quality development, and formulating the military’s 15th Five-Year construction plan to enhance strategic capabilities for safeguarding national sovereignty, security, and development interests.
The article noted that the modernization of national defense and the military during the 15th Five-Year Plan period is divided into three parts:
- Firmly grasping the fundamental requirements: Using Xi Jinping’s Thought on Strengthening the Military as a guide, the People’s Liberation Army will establish political superiority, strategic positioning, stage objectives, and an international perspective.
- Coordinating key tasks: The PLA will transform abstract requirements into concrete development of combat capability, governance capacity, and system capability.
- In a subsection on “advancing the modernization of military governance,” Zhang calls for “continuing deep political rectification — cleansing ideology, personnel, organization, conduct, and discipline — particularly in key sectors and fields, to achieve political purification at its roots.”
- Focusing on quality and efficiency: The PLA will ensure the consistent implementation of “high quality” through Party-building, efficiency, innovation, and policy execution.
When discussing the “political advantage of the Party’s absolute leadership over the military,” Zhang Youxia said:
- “We must strengthen political guidance to forge loyalty — make real efforts to study, understand, believe in, and apply Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era; consciously and thoroughly reform our thinking; completely eliminate residual toxic influences; resolutely prevent being ‘two-faced’ or showing false loyalty; and truly embed loyalty to the core and obedience to the Party’s command into the minds of officers and soldiers, and into all aspects of our military modernization.”
- “We must also strengthen organizational construction — particularly at the senior Party Committee level — and take the lead in fully and thoroughly implementing (落到底、落到位) the CMC Chairman Responsibility System.”
Zhang mentioned “Xi Jinping” four times and “General Secretary Xi” 16 times in his article. The article was also published amid the backdrop of Beijing’s push across civilian governing organs and the military to “study and implement the spirit of the Fourth Plenum of the 20th Central Committee.”
Our take
1. Zhang Youxia’s article is primarily a political tract aimed at pledging the PLA’s loyalty towards Xi Jinping and its determination to transform into the effective fighting force that the CCP requires to accomplish its domination agenda. Notably, Zhang repeatedly mentions the guiding, regulatory, and essential role of Xi’s political theories to the military’s development, while constantly reiterating principles like the Party’s absolute leadership over the PLA, the “Two Establishes” and the “Two Safeguards” (emphasizing Xi’s paramount position in the CCP), and the need to reinforce political discipline.
Zhang’s article also hints at severe corruption in the military and potential widespread discontent towards Xi among the ranks. This can be observed from Zhang’s points about the need to “completely eliminate residual toxic influences,” “resolutely prevent being ‘two-faced’ or showing false loyalty,” and “continuing deep political rectification … to achieve political purification at its roots.” The Xi leadership’s “rectification” efforts can also be seen from CCTV’s coverage of military meetings and events where lieutenant generals have been spotted standing in for absent full generals. We believe that Beijing’s purge of the PLA will only be nearing its conclusion when Xi starts to promote new full generals to fill the vacancies left by those who have been removed.
2. Despite the CCP’s overwhelming affirmation of Xi Jinping’s paramount position in the regime — particularly before, during, and after the Fourth Plenum of the 20th Central Committee — some overseas Chinese commentators and media outlets continue to argue that Xi has “lost power” and Zhang Youxia is in control of “military power.” However, the content of Zhang’s “spirit of the Fourth Plenum” piece in the People’s Daily clearly indicates that he is the subordinate and Xi is the superior in both military and civilian affairs in the PRC. Xi can be said to be secure in power as long as there is no shift in the CCP’s current propaganda narrative emphasizing Xi’s “core” leadership and the importance of his political theories to the regime.
Content aside, there is another clear indicator demonstrating Zhang’s position relative to Xi’s. As part of Beijing’s post-Fourth Plenum propaganda push, senior officials from the Party, the government, the military, and mass organizations have published signed commentaries in People’s Daily that essentially declare their loyalty to Xi through the study and implementation of the “spirit of the plenum.” At the time of writing, the following officials have published signed commentaries in People’s Daily :
- Oct. 30: “Guiding Principles for Economic and Social Development During the 15th Five-Year Plan Period” (page 3) — Li Qiang
- Oct. 31: “Deepening Economic System Reform and Promoting High-Quality Development” (page 2) — Wang Huning
- Nov. 3: “Persistently Advancing Comprehensive and Strict Party Governance” (page 3) — Cai Qi
- Nov. 4: “Main Goals of Economic and Social Development During the 15th Five-Year Plan Period” (page 3) — Ding Xuexiang
- Nov. 5: “Promoting the Building of a Community with a Shared Future for Mankind” (page 6) — Wang Yi
- Nov. 6: “Accelerating Agricultural and Rural Modernization” (page 6) — Liu Guozhong
- Nov. 7: “Stimulating the Creative and Innovative Vitality of the Chinese Nation’s Culture” (page 6) — Li Shulei
- Nov. 10: “Advancing the Construction of Socialist Democracy and the Rule of Law” (page 6) — Li Hongzhong
- Nov. 11: “Developing New Quality Productive Forces Based on Local Conditions” (page 6) — He Lifeng
- Nov. 12: “Promoting the Modernization of National Defense and the Armed Forces with High Quality” (page 6) — Zhang Youxia
Which page of People’s Daily the commentaries appear on corresponds to the political seniority of the official. For instance, commentaries by Politburo Standing Committee members were featured on either page 2 or page 3, while those by Politburo members were published on page 6. As Zhang Youxia’s commentary appeared on page 6 like those of other Politburo members, there is no change in his political position in the CCP regime.
3. Xi Jinping might presently be secure in power, but that does not mean that he faces no or little political risk. The fact that Xi constantly needs to emphasize his paramount position and the nonstop uncovering of corrupt or disloyal elements in the regime indicates that Xi’s grip on power, while strong, is less secure than appearances suggest.
Xi also appears to have been unable to “completely eliminate” the “residual toxic influences” of the Jiang Zemin faction and other “anti-Xi” figures in the CCP elite even after more than a decade in charge. This indicates that factional struggle in the Party elite could yet flare up in more public and obvious forms should the PRC’s economic and other crises dramatically take a turn for the worse.
