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The dim sum bond is an investment issued in Hong Kong. It is denominated in Chinese yuan. They are frequently used by foreign investors as an entry into the Chinese market. Many early investors were attracted to the bonds because of their low rates and the expectations that the yuan would experience substantial growth. The bonds are named after a popular Chinese meal which consists of several different kinds of bite-sized foods such as dumplings and steamed buns.
By creating the dim sum bond, China created the opportunity for the yuan to become a more powerful currency. Due to foreign holders, it would become more common to find the currency in central banks around the world. This kind of investment would give a lasting financial boost to China. Increasing international use of the yuan would also enable China to reduce the amount of foreign currency it held in its bank — the American dollar in particular — which would allow China further boost its finances.
The dim sum bond was originated in Hong Kong in 2007. It was issued at a time when the local and country economies were struggling. Hong Kong was established by China as the central resource for dim sum bonds in the hopes of attracting foreign investors. This is primarily because the city already had an established relationship with the international financial community.
Due to the fast success of the bond, China, and particularly Hong Kong, received a much-needed financial boost. As a result of this success, other aspects of the economy began to improve as well. More foreign investors became interested in the bonds due to the expectation that they may become competitive with the American dollar.
When they were first created, only Chinese banks had permission to issue the dim sum bond. After it had been established in the market, the restriction was lifted. Now all banks can offer this investment opportunity. This helps to fulfill China’s desire to attract sovereign and central bank investors.
The first purchases of dim sum bonds were tentative, as they had been in existence for only a few years. The purchases enabled these companies to raise funds for their own growth into China. Part of this is strategy, as buying yuan boosts the Chinese economy and thus gives foreign companies an opportunity to improve their international relations.