Once in a while a major financial innovation creates a new product that changes the landscape for
firms that adopt it. For example, junk bonds enabled leveraged buyouts, securitization stimulated off
balance sheet growth in banks, and CDS offered pure trading in credit risk. New RMB financial
products emerging as China opens its capital account provide a similar change to the landscape for
firms and investors engaged with China or those using RMB as a vehicle currency. Uptake of the new
products has been rapid, and in this paper we use the data from the Hong Kong Monetary Authority for
offshore RMB bonds to explore that process. We are mostly interested in what determines firms’
participation decision in this market. We allow for changes in regulation, market depth, parallel market
developments and changes in the advantages of participation using interest differentials to explain
what influences firms’ and investors’ choices to enter the market and find that they all have an
influence on the decision to participate in this new financial market