The issuance of “panda bonds” – yuan-denominated debt securities from overseas institutions operating in China – hit a record high in 2024, bolstered by lower funding costs and heightened efforts from Beijing to expand use of the currency.
Analysts expect even more growth this year, given the country’s need to shore up its economy and a long-term campaign to widen adoption of the yuan for international settlements.
China saw 109 issuances of panda bonds last year at a volume of 194.8 billion yuan (US$26.7 billion) according to Wind, a Chinese financial data provider. This marked a 16 per cent increase in the number of issuances and a 26 per cent year-on-year rise in value.
Do you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team.
“The yield differential between China and the world is the primary driver, which is also supported by the previous change in using proceeds for repatriation,” said Gary Ng, a senior economist at Natixis.
“In addition, more sovereign issuers seek to diversify their forex funding exposure.”
To stimulate market liquidity, the People’s Bank of China made cuts to interest rates and reduced the reserve requirement ratio last year, which in turn helped lower borrowing costs for issuers.
Panda bonds offer international issuers a means to tap into the world’s second-largest economy at attractive rates.
In July, the New Development Bank – a multilateral development institution established by the Brics bloc of emerging economies – issued a tranche of three-year panda bonds totalling 8 billion yuan, with a coupon rate of 2.03 per cent. This was the largest single issuance in 2024.
Additionally, HSBC raised 4.5 billion yuan through a three-year issuance in November, with an annual coupon rate of 2.15 per cent. Deutsche Bank also issued a total of 8 billion yuan in panda bonds in 2024 within a pre-approved quota from the Chinese central bank.
Ng said the increased issuance of panda bonds is beneficial for the internationalisation of the yuan, as it can “beef up the role of the currency”.
“While the yield factor may be less attractive in 2025, the low rate environment in China and demand for the yuan should continue to support issuance,” Ng said.
In a statement following the annual tone-setting central economic work conference in December, China’s leadership said the country would adopt an “appropriately loose” monetary policy in 2025, suggesting more easing is in store.
