Abstract

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With only roughly 20 million Muslims in China, it is not surprising that Islamic finance has not taken off in China. Recently, however, some Chinese companies have expressed interest in tapping into offshore pools of Islamic funds. For example, HNA Group, a mainland Chinese firm that owns Hainan airlines, is reportedly considering Islamic financing options for its proposed US$ 150 million acquisition of ships as well as a large offering of offshore Sukuk (Islamic bonds). Another example is that of Country Garden, a Guangdong-based property developer, which issued a Malaysian Ringgit 1.5 billion sukuk through its Malaysian subsidiary in December 2015. Nonetheless, the use of Islamic financing is far and few amongst Chinese companies given the relative competitive onshore borrowing costs and significant technical hurdles involved. Private companies are at a disadvantage in terms of onshore borrowing as compared to their state-owned enterprise counterparts given the latter’s privileged access to the loan markets. Therefore, private companies may welcome the opportunity to diversify their sources of funding and access to credit.