On November 13th local time, China successfully issued $2 billion sovereign bonds in Saudi Arabia, with a total subscription amount of $39.73 billion. The 5-year subscription multiple reached 27.1 times, the highest multiple of global sovereign bond issuance in recent years.
This is the first Chinese sovereign bond issued and listed in the Middle East region, and also the first sovereign bond priced for issuance in Saudi Arabia.
Why is China issuing US dollar bonds this time? Why choose Saudi Arabia instead of other regions? Why does the issuance amount have a significant impact despite being small?
Today, the author will analyze why China’s issuance of US dollar bonds in Saudi Arabia is of great significance in weakening US financial hegemony.

The world has suffered from the hegemony of the US dollar for a long time.

The US dollar trap affects the world.

After World War II, the international community established an international financial order centered around the US dollar – the Bretton Woods system, and the US dollar was pegged to gold, becoming the “world currency”.

After the collapse of the Bretton Woods system in 1973, a credit system based on the US dollar gradually formed, providing a foundation for the United States to harvest wealth from countries around the world.

Due to the long-term dominant position of the US dollar in the international financial system, most countries around the world settle commodity transactions such as oil and raw materials in US dollars. Many developing countries rely on the US dollar as a tool for foreign exchange reserves and external payments due to unstable currency values or lack of trust in the international market.

As a trader of the US dollar, the Federal Reserve is well aware of the impact of the US dollar on the world financial markets. Through rounds of interest rate cuts and hikes, the “US dollar tide” has plunged the world economy into one cycle after another of “prosperity crisis downturn”.

When interest rate cuts come, they are often accompanied by a large influx of US dollar capital, bringing false prosperity to the local area, causing economic overheating, and triggering inflation.

When interest rate hikes arrive, the tide of the US dollar recedes, capital outflows occur, asset prices fall, and debt crises often follow, thus forming the “US dollar trap”.

In history, multiple financial crises have been somewhat linked to the US monetary policy cycle.

For example, from 2001 to 2003, the Federal Reserve cut interest rates 13 times, amplifying the asset foam. From 2004 to 2006, the Federal Reserve raised interest rates 17 times in a row, directly puncturing the real estate foam, triggering the subprime mortgage crisis, which eventually evolved into an international financial crisis.

The hegemony of the US dollar reaps the world.
For trade surplus countries, they earn more dollars but have less room for use.
Middle Eastern countries such as Saudi Arabia earn a large amount of US dollars by exporting oil, but there are very few safe, liquid, and profitable US dollar investment channels globally.
Most trade surplus countries use their dollar reserves to buy treasury bond bonds issued by the United States or invest in American assets.
So, the hard-earned US dollars from various countries flowed back to the United States, in exchange for a paper of US debt.
However, as the size of US Treasury bonds continues to grow, reaching over $36 trillion by November 2024, it remains a huge unknown whether the US will be able to repay its debts in the future.
In addition, during the Russia-Ukraine conflict, the United States arbitrarily frozen other countries’ overseas dollar assets, which also worried the “princes of the Middle East” who held heavy money.

For countries with trade deficits, they spend more dollars and earn less dollars. They often need to borrow US dollars from the United States or other countries to meet their participation in world trade needs.

The United States took the opportunity to increase its money printing efforts, lending a large amount of US dollars to trade deficit countries while guiding the return of US dollars through the coordination with the Federal Reserve’s periodic interest rate hikes, causing larger US dollar holes in other countries and ultimately forcing trade deficit countries to sell high-quality sovereign assets at a low price to offset their debts, thereby achieving the goal of harvesting.

Therefore, whether it is a trade surplus or a trade deficit, as long as it is under the US dollar trading system, there is a potential risk of being harvested by the United States.

The root cause is the lack of a strong enough intermediary credit system to facilitate cooperation between trade deficit countries and trade surplus countries, and to avoid being exploited by the United States.

The world hopes for the salvation of the Chinese people.
Dongda takes action to balance the accounts of various countries.
After nearly two years of crazy interest rate hikes, the United States has absorbed the flowing US dollars from around the world back into its homeland. Many developing countries have almost no resistance to this wave of US dollars, and their US dollar reserves are becoming increasingly tight. A debt crisis could erupt at any time.
Faced with the shameless harvest of the United States, Dongda finally took action amidst numerous calls.
In this tide, China has utilized its huge reserves of US dollars to provide liquidity support to multiple countries around the world through various means, helping them cope with the negative impact of US dollar interest rate hikes.
After obtaining US dollar loans, these countries can more effectively manage their debt problems and avoid financial crises caused by tight US dollar liquidity.
When countries repay loans to China, they can use their major raw materials such as minerals and oil, or choose to repay in RMB, which invisibly accelerates the internationalization of RMB. (See also our article “How to view the RMB becoming the fourth most active currency in the world?”)

The issuance of US dollar bonds by China this time is a new form of resolving financial risks brought about by the dominance of the US dollar.
Due to China’s $3.26 trillion foreign exchange reserves and favorable economic development trend, the sovereign credit of bonds is good, and investors from various countries have a strong willingness to subscribe. China has provided a safer channel for investors to invest in US dollars.
At the same time, China will use the funds raised to expand domestic and foreign investment, allowing developing countries to receive sufficient US dollar support in a timely manner, which will help alleviate the heavy burden of US dollar debt and help these countries quickly get out of the “US dollar trap”.

Therefore, the issuance of US dollar bonds this time can not only regulate the failure of the international financial system caused by the United States’ reckless harvesting, but also help countries trapped in the “US dollar trap” to get out of trouble. It is an innovative practice of China in the financial field to practice the concept of a community with a shared future for mankind.

The “cash level” cooperation between China and Saudi Arabia aims to expand globally.

Saudi Arabia is located in the Middle East and has long been a geopolitical hub as a key player in the global energy market.
In recent years, under the “the Belt and Road” initiative, China and Saudi Arabia have continuously deepened cooperation in infrastructure, energy, finance and other aspects. The two sides have deep political mutual trust and close economic and trade exchanges.

China’s issuance of US dollar bonds in Saudi Arabia is not only a regulation of the existing international financial system, but also an important step in accelerating the interconnectivity of the financial system.
On the one hand, from a strategic perspective, Saudi Arabia, as an important oil exporting country in the world, has huge foreign exchange reserves and is one of the strongest countries in the Middle East.
By issuing bonds in Riyadh, China can deepen its economic ties with Saudi Arabia, strengthen its strategic presence in the Middle East, and enhance its international influence.
On the other hand, from the perspective of financial governance, if the issuance of US dollar bonds goes smoothly and is fiercely sought after by Middle Eastern investors, we can measure China’s influence and appeal in the Middle Eastern capital market through the speed, interest rate, and maturity of bond issuance.
This batch of Chinese style US bonds not only raised funds for China, but also stimulated the investment enthusiasm of Middle Eastern and even global investors towards China, greatly enhancing China’s voice in global financial governance.
The successful issuance of sovereign bonds this time demonstrates China’s strength and responsibility as a responsible global power, demonstrating “Chinese wisdom” in reducing the negative impact of US dollar hegemony and maintaining global financial stability.
We look forward to seeing China participate more in international financial governance in the future, promoting a more stable and healthy development of the global financial system.