Speaking in Ankara on Wednesday, Turkey’s President Recep Tayyip Erdogan announced that Turkey will issue so-called panda bonds in China to “diversify its sources of financing,” raising money in Chinese yuan rather than in US dollars or euros. He also called on Turkish citizens to engage in “national resistance” and to convert the foreign currency they kept under their mattresses into Turkish lira.

Turkey’s lira has lost 30% of its value this year and the Turkish stock market has lost more than 40% of its value in US dollar terms, most of it before the United States introduced sanctions against Turkey in retaliation for the jailing of an American Christian clergyman. Turkey is running a current account deficit equal to 6.5% of GDP, one of the highest in the world, and is running out of financing sources.

The idea of borrowing in Chinese yuan has been in preparation for months. Last February, the Turkish Treasury announced that it had asked several Chinese and foreign banks to prepare for panda bond issuance during the second half of 2018.

Last week, the Industrial and Commercial Bank of China announced that it would refinance US$2.7 billion of loans to some of President Erdogan’s prestige infrastructure projects in Istanbul.

China views Turkey as a terminus on the New Silk Road project. With Turkish equity valuations close to all-time lows, selective Chinese bottom-fishing in the Turkish market is to be expected. Turkey has also expanded military cooperation with China during recent months, the website Al-Monitor reported yesterday.