Following their record high issuance last year, the popularity of panda bonds, or renminbi-dominated bonds issued by overseas institutions in the Chinese onshore market, has caught high attention in the first quarter of this year.
Panda bonds have played an important role in introducing international issuers and investors, enriching the structure of China’s bond market and expanding its opening-up to the outside world. In 2023, the annual issuance of panda bonds in China exceeded 150 billion yuan ($20.70 billion), with the number of issuers and issuance scales both increasing by more than 80 percent year-on-year.
Given the low interest rates of the US dollar in the past, most international companies generally prefer to complete bond issuance in the US bond market and then convert the funds into renminbi to fund their subsidiaries in China. However, as the dollar interest rates remain high, international companies now tend to issue renminbi bonds directly to meet their financing needs.
Cost advantage apart, institutional support is another major attraction for foreign issuers.
In December 2022, China’s central bank and the State Administration of Foreign Exchange jointly issued a notice integrating the rules for the management of panda bond funds in the interbank bond market and the exchange bond market, further improving the financing convenience for overseas entities in the domestic bond market. In September 2023, the National Association of Financial Market Institutional Investors issued a document promoting the discovery of bond prices, enriching the number and type of investors and enhancing secondary liquidity. These measures have provided a good institutional foundation for the vigorous development of the panda bond market.
The expanded issuance of panda bonds has not only strongly promoted the renminbi’s internationalization, but also helped build an offshore RMB capital pool. At the same time, the cross-border use of the RMB will facilitate more foreign institutional investors to participate in China’s bond market, further unblock the return channel for the currency, establish a closed loop for the international use of the RMB, and enhance the monetary liquidity of the RMB.
In recent years, China has steadily promoted the internationalization of the RMB, providing more diversified and convenient currency choices for domestic and foreign business entities. The stability, security, marketization and globalization of the RMB has not only enhanced international recognition of the RMB, but also promoted the steady march of the RMB toward a stronger currency.