Periodically a major financial innovation creates a new product class that changes the financial
landscape. Examples include junk bonds that enabled leveraged buyouts, securitization that stimulated
off balance sheet growth in banks, and credit default swaps that offered pure trading in credit risk. Now
new renminbi financial products are emerging as China opens its capital account, providing new
opportunities for innovation in corporate finance that will promote financial stability and sustainable
growth in China. This study illustrates the rapid growth in the use of these new products by Chinese and
overseas firms. We use diffusion models to explore how participation in this market is influenced by
greater depth and liquidity of the market, lower costs of issuance and greater expected appreciation of
the renminbi against the US dollar. Understanding these offshore developments will help support
smoother innovation in the onshore corporate bond market.