China Opens Bond Market to Foreign Social and Sustainable Borrowers

China will allow foreign issuers to sell bonds for social responsibility and sustainable development purposes in the country’s interbank market under a pilot program to expand foreign access to the world’s second-largest bond market.

Foreign government agencies, international development organizations and overseas nonfinancial companies can register to issue bonds designated to fund social responsibility and sustainable development projects, the National Association of Financial Market Institutional Investors (NAFMII) said Thursday in a statement. The association is an interbank bond market self-regulatory body under the central bank.

The program will add more options for foreign borrowers to tap into the vast Chinese bond market by selling “panda bonds,” referring to yuan-denominated debt instruments sold by non-Chinese issuers on the mainland market.

Panda bond issuance totaled 57.9 billion yuan ($8.96 billion) in the first six months this year, up 42.6% from the same period last year, according to data from the China Chengxin International Credit Rating Co. Ltd. A total of 37 bonds were issued by 17 entities.

The new pilot program would help guide financial resources to support environmental and socially sustainable development, assist companies’ transformation efforts and elevate the global status of China’s bond market, the NAFMII said.

Bonds issued under the program will be assessed for fundraising purpose, projects, fund management and information disclosure, the association said.

To qualify, issuers must use all the proceeds to fund social responsibility and green development projects, according to the NAFMII.

Eligible green development projects are those listed in the green bond endorsement catalogue published by the People’s Bank of China, or those meeting criteria set by the European Union and other international standards. Social responsibility projects should follow criteria set by the United Nations, the organization said.

The association will also require issuers to make regular disclosures on fund management and use.

Foreign companies and institutions have been increasingly involved in China’s panda bond market, which was once dominated by Chinese-fund enterprise and financial institutional issuers. In March, the Asian Development Bank raised 2 billion yuan from panda bond sales, followed by the BRICS New Development Bank's 5 billion yuan issuance.

The Asian Infrastructure Investment Bank debuted its first panda bonds of 3 billion yuan last year to support member countries in dealing with the Covid-19 pandemic.

Contact reporter Han Wei (weihan@caixin.com) and editor Bob Simison (hello@cixin.com)

Download our app to receive breaking news alerts and read the news on the go.

Get our weekly free Must-Read newsletter.