China issued $2 billion in USD-denominated bonds in Saudi Arabia, creating significant buzz within China. The bonds were oversubscribed by nearly 20x, indicating extremely high demand.
The bonds were issued at interest rates close to US Treasury rates, a unique scenario as no other country achieves such parity with the US.
These bonds were issued in Saudi Arabia, diverging from the typical financial centres, making it symbolically significant given Saudi Arabia’s role in the petrodollar system.
China could compete with the US Treasury by issuing larger quantities of USD bonds, creating a parallel dollar system. This could redirect global dollar flows, reducing the US’s “exorbitant privilege” in managing dollar liquidity.
Redirecting investments to Chinese bonds could challenge the US’s ability to fund its deficits through Treasury bonds. With massive dollar surpluses, China could channel these into paying off USD debts of Belt and Road Initiative (BRI) countries.
