The rise of the Dim Sum bond market drives RMB internationalization; strong Asian tech exports, non-tech under pressure; German fiscal expansion aids eurozone asset recovery — 1204 Macro Distillation

The rise of the Dim Sum bond market drives RMB internationalization; strong Asian tech exports, non-tech under pressure; German fiscal expansion aids eurozone asset recovery — 1204 Macro Distillation

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  1. The Dim Sum bond market is developing rapidly, with distinctive advantages in meeting financing needs, reflecting strong demand for the RMB as a financing currency. If the market can continue to expand in size and attract more issuers and investors, it may form a virtuous cycle, driving the RMB to become an investment and store-of-value currency.
  2. Asian tech exports are strong, driven by AI and price effects; non-tech exports are expected to remain weak. Most economies have largely completed their rate-cut cycles against a backdrop of low inflation, with policy rates near neutral, and each country retaining policy space to respond to risks.
  3. Germany's fiscal transformation plan focuses on infrastructure, defense, and local investment. The 2026 budget draft shows a significant expansion of the deficit, ongoing increases in defense spending, and the net borrowing ratio is likely to reach recent highs. In the short term, the fiscal expansion effect is expected to become concentrated in 2026-2027.

1. Dim Sum Bond Market’s Rise Drives RMB Internationalization

Dim Sum Bond Market’s Rise Drives RMB Internationalization (Deutsche Bank)

Deutsche Bank points out that the rapid development of the Dim Sum bond market has unique advantages in meeting financing needs, reflecting strong demand for the RMB as a financing currency. If the market can continue expanding, attracting more issuers and investors, a virtuous cycle could form, propelling the RMB toward becoming an investment and store-of-value currency.

  1. The Dim Sum bond market (RMB-denominated bonds issued in Hong Kong) has grown rapidly in recent years, reflecting strong potential demand for RMB as a financing currency.
    • Issuance increased from RMB 300 billion in 2021 to RMB 850 billion in 2024, and this year is expected to reach RMB 900 billion to 1 trillion.
    • In addition to government and financial institutions increasing issuance, state-owned and private enterprises have ramped up Dim Sum bond issuances. Chinese tech firms such as Alibaba, Baidu, and Tencent have all issued such bonds.
  2. Dim Sum bonds meet the diverse financing needs of various entities.
    • Low RMB interest rates increase the appeal of Dim Sum bond financing. As RMB long-term rates decline, 5-year and 10-year Dim Sum bond issuance noticeably increases.
    • Chinese firms’ offshore financing is still mainly in foreign currency for now, but many want to shift part of their debt to RMB, which helps reduce financing costs and minimizes FX risk.
  3. Continued RMB appreciation, Dim Sum bond market moving toward a virtuous cycle.
    • Enhanced Chinese trade and high current account surpluses are expected to drive further RMB appreciation in 2026-27, increasing the attractiveness of RMB-denominated assets including Dim Sum bonds.
    • If the Dim Sum bond market continues expanding and attracts enough issuers and investors, a virtuous cycle may emerge.
    • The development of the Dim Sum bond market plays a crucial role in RMB internationalization. It promotes RMB as a store of value, not just a medium of exchange, leading more offshore entities to hold RMB.

Dim Sum bonds offer the advantage of long-term financing of up to 30 years, which matches long-term project investment cycles.

Foreign governments and institutions are also gradually entering the Dim Sum bond market, signaling further expansion toward foreign participants.

2. Strong Asian Tech Exports, Non-Tech Pressured

Strong Asian Tech Exports, Non-Tech Pressured (Nomura)

Nomura points out strong tech exports in Asia driven by AI and price effects, while non-tech exports are expected to remain weak. Most economies have completed rate-cut cycles amid low inflation, with policy rates near neutral, and policy space reserved to address risks.

  1. AI and price effects drive tech exports.
    • Driven by AI demand, storage chip price rises, and low inventory of technology products, tech export momentum will continue into 2026.
    • After US tech giants’ capex grows about 62% in 2025, 2026 could see another 40-60% increase, driving demand for AI chips and spilling over into data storage and server demand; surging AI demand and ongoing chip shortages are jointly pushing up memory chip prices.
  2. Non-tech exports may remain sluggish.
    • Weak Chinese domestic demand will reduce import needs, dragging on export growth in other Asian regions.
    • US tariffs squeeze exporters’ margins; though Asia is pursuing export diversification, results will take time to appear.
  3. Asian economies have largely ended the rate-cut cycle under a low inflation backdrop, with overall policy differentiation.
    • Inflation is low, but the rate-cut cycle is largely complete in Asia, reflecting policy rates nearing neutral and the need to keep policy space.
    • Monetary policy is divergent: South Korea and Malaysia’s growth outlook is more optimistic and rate-cut cycles have ended; Southeast Asian countries still have room to cut, with the Philippines, Thailand, India, and Indonesia potentially lowering rates due to low inflation or weak growth. 

Inventory overhang means any recovery in non-tech exports may be delayed as firms work through existing stocks.

3. German Fiscal Expansion Supports Eurozone Asset Recovery

German Fiscal Expansion Supports Eurozone Asset Recovery (CICC)

CICC points out Germany’s fiscal transformation plan is focused on infrastructure, defense, and local investment. The 2026 budget draft shows a significant deficit expansion and rising defense spending, with net borrowing ratios likely to reach recent highs. In the short term, the effect of fiscal expansion is expected to concentrate in 2026-2027.

  1. Germany’s latest fiscal transformation plan centers on infrastructure, defense, and local investment.
    • A €500 billion infrastructure and climate neutrality special fund (SV IK); loosening budget constraints on defense spending; reforming the federal state “debt brake” rule by raising borrowing limits.
  2. The 2026 federal budget draft is still under review, with these characteristics.
    • On-budget deficits expand notably, with 2025-2029 on-budget deficits growing at an annualized rate of about 12%; defense spending also rises gradually.
  3. Short-term policy implementation is still promising, supporting next year’s growth.
    • Fiscal spending is front-loaded, and Germany’s fiscal expansion is directly expected to concentrate in 2026 and 2027.
    • The impact of fiscal shift may be felt as early as Q4 this year, but is more likely to appear in H1 next year.
    • German fiscal measures are crucial for Eurozone asset recovery, with a focus on whether the fiscal effect translates into economic growth and corporate earnings.

The ratio of net borrowing to GDP (on-budget and off-budget) could hit recent highs in 2026; total federal investment as a share of GDP may stabilize at a relatively high level.

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