China ramps up yuan support with HK bill issuance

China expanded its support for the beleaguered yuan with a plan to issue a record amount of bills in the Hong Kong market to mop up excess liquidity.

The People’s Bank of China (PBOC) will auction 60 billion yuan (US$8,2 billion) of six-month bills in the city on January 15, the Hong Kong Monetary Authority said in a statement. The issuance will effectively increase demand for the yuan in offshore markets, making it more costly to borrow and short the currency.

The issuance is set to be the largest on record since the central bank started bill auctions in Hong Kong regularly in 2018, according to Bloomberg-compiled data.

The yuan’s tumble in recent months, spurred by a sluggish Chinese economy and potential US tariff hikes, has traders pondering the PBOC’s commitment to defend the currency. The central bank has so far remained firmly supportive of stability, as it propped up the yuan with its daily fixings while also pledging to prevent an overshoot in exchange rates.

“We cannot rule out policymakers deploying even higher funding squeeze in the short term,” said Christopher Wong, a strategist at Oversea-Chinese Banking Corp. “At this point, the combination of fixing pattern and offshore funding squeeze are intended to guide for a stable yuan.”

The additional bill issuance in Hong Kong is a tactic that the PBOC deployed multiple times before and it was last used in 2023. Offering broader choices of yuan assets in the city also serves Beijing’s long-term ambition to globalise the currency. — Bloomberg.