Panda Bonds Set to Top 200 Billion Yuan This Year: What’s the Story Behind This Milestone? (AI Translation)

【周刊提前读】熊猫债规模今年有望破2000亿 里程碑背后有何故事？

**Summary:**

As of 2024, Panda bonds, renminbi-denominated bonds issued by foreign entities within China's domestic bond market, are expected to surpass a total issuance of 200 billion yuan, marking a record high for the second consecutive year [para. 1][para. 3]. These bonds, primarily issued in the interbank bond market, have drawn significant attention due to the notable increase in issuance since 2023 and the increasingly diverse range of issuers [para. 3][para. 4]. The widening interest rate differential between China and the United States and cost advantages in RMB financing are significant factors contributing to this growth [para. 5][para. 6].

Panda bonds were first issued in 2005 by the International Finance Corporation (IFC) and the Asian Development Bank (ADB) [para. 13][para. 18]. Initially, development was slow due to strict regulatory restrictions and high debt issuance costs [para. 17][para. 19]. A rapid increase in Panda bonds issuance occurred following China's RMB exchange rate reform in August 2015, leading to a market situation in 2016 where many offshore RMB bonds issuers returned to onshore financing [para. 21][para. 23]. From 2017 to 2020, the market experienced fluctuating issuance and regulatory improvements, while low interest rates and better regulations spiked issuance further from 2021 onwards [para. 25][para. 26].

Prominent issuers like Deutsche Bank indicate growing momentum in the market. Deutsche Bank issued 8 billion yuan in Panda bonds in China's interbank bond market from January 2023 to June 2024 and plans to apply for a new quota [para. 41][para. 46]. The initial issuance faced low investor participation, but by 2024 the market had warmed up, attracting more subscriptions and achieving oversubscriptions [para. 48][para. 49]. Issuers primarily utilize funds from Panda bonds for cross-border needs and global deployment [para. 57][para. 63].

Significant driving factors for recent market expansion are the rising importance of the renminbi in the international monetary system and the preference of issuers for Panda Bonds to secure flexible, low-cost funding [para. 81][para. 85]. New issuances and growing internationalization of the RMB are further enhancing the market. Issuers from regions such as the Middle East and Latin America are expected to join the market, and the credit quality of issuers may be loosened with the use of guarantees, such as the recent issuance by Egypt [para. 101][para. 102].

The issuance by NWS Holdings illustrates practical considerations; the company used Panda bonds to replace higher-cost foreign borrowings in Hong Kong dollars and U.S. dollars [para. 107][para. 110]. This highlights the importance of the interest rate differential between China and the U.S., with RMB financing becoming an attractive substitute due to lower costs [para. 113][para. 115].

Additionally, the market has seen improvements with new policies enabling foreign issuers to use the funds raised from Panda bonds overseas, boosting international investors’ participation [para. 121][para. 126]. There is an emphasis on enhancing market-oriented issuance and addressing investors' needs for longer-term bonds [para. 157][para. 158].

In conclusion, the Panda bond market is experiencing robust growth driven by favorable interest rate differentials, regulatory support, and the expanding international use of the renminbi. As China continues to optimize mechanisms and promote the RMB's internationalization, the Panda bond market is likely to attract even more diverse and substantial issuers globally [para. 179][para. 181]. The overall participation and expansion of this market are crucial for fostering the global accessibility and stability of RMB-denominated financial assets [para. 213][para. 214].