Federal Finance Minister Muhammad Auranzeb has said the country intends to issue yuan-denominated bonds this year of $ 250 million. This is a little lower than the $300 million that was announced in March, when the idea was first floated. This disclosure should be seen in the light of the $1 trillion trade surplus that China had in the last year. China, unlike Pakistan, is not short of dollars. He further disclosed that while the country had been upgraded by international rating agencies, it hoped for a single-B rating, which would allow it to return to the global bond markets. If it was get an improved rating, it would also enable it to issue the Panda bond’, as yuan-denominated bonds are called, at a lower interest rate.
Mr Aurangzeb has clearly got an eye on the vast pile of dollars which Chinese banks have, but he would do well to consider the direction of Pakistan’s trade. In 2022, China exported goods worth $ 21 billion to Pakistan, out of its total imports of $70 billion. At the same time, it exported goods worth $2.8 billion of its total exports of $ 30.8 billion. While China’s trade with Pakistan is not dominant, it does justify holding part of its debt in yuan-denominated bonds. This will allow the country to protect its debt and trade against yuan-dollar fluctuations. This is especially important as the strength of the Chinese economy makes a fall in the dollar inevitable. (While China had that massive trillion-dollar surplus, the USA had a trade deficit of $78 billion).
Another reason Pakistan should get in on the ground floor, so to speak, is how China, as a founding member of BRFICS, is working towards an alternative to the dollar for international trade.
That will require at least some oil trade, presently entirely in dollars, to be in some other currency. China is not putting forward the yuan as an alternative, but in its first expansion, BRICS admitted both Saudi Arabia and the UAE. Thus it has become clear that China is very serious about oil trade. It therefore becomes only sensible to have part of the country’s debt denominated in yuan, since two things are clear: oil trade need not be in dollars; and that China will play a major role in determining the new currency.
