China's Panda Bonds Hit Record Issuance Scale... Accelerating Expansion of Yuan Hegemony

Release of 400 Billion Yuan in Medium-Term Notes
20% Increase in Issuance Compared to Previous Year
Achievements in Yuan Internationalization Efforts

The issuance scale of so-called "Panda Bonds," yuan-denominated bonds issued by foreign governments or institutions in mainland China, has reached an all-time high this year. Analysts say this reflects the tangible results of the Chinese government's efforts to boost the yuan's influence in the international community.

[Image source=Bloomberg]

According to major foreign media on the 8th (local time), the total amount of yuan-denominated bonds issued by foreign companies in the Hong Kong bond market and mainland China this year reached 395 billion yuan (approximately 71.87 trillion KRW). This represents an increase of more than 20% compared to the same period last year. There are also forecasts that the issuance amount will surpass last year's record high of 466 billion yuan by the end of this year.

Yuan-denominated bonds can be divided into Panda Bonds and Dim Sum Bonds depending on the issuing country, with issuance amounts of 75 billion yuan and 320 billion yuan, respectively. This year's issuance of Panda Bonds more than doubled compared to the previous record of 32.4 billion yuan in 2021. Panda Bonds refer to yuan-denominated bonds issued by foreign governments or institutions in mainland China. During the same period, the issuance of Dim Sum Bonds, which are yuan-denominated bonds issued in the Hong Kong bond market, also reached 320 billion yuan, marking a record high.

The relatively low benchmark interest rate in China compared to the United States is analyzed to have increased demand for Panda Bonds due to lower borrowing costs. China's Loan Prime Rate (LPR), which effectively serves as the benchmark interest rate, is only 3.55%, lower than the U.S. benchmark rate (5.25?5.50%). Clifford Lee, head of global bonds at DBS, Singapore's largest bank, explained, "With China's benchmark interest rate being low, borrowing money in mainland China is cheaper than overseas."

This year, the Chinese government's improvement of bond issuance regulations also boosted the popularity of Panda Bonds. Last year, the Chinese government lifted restrictions allowing funds raised through Panda Bond issuance domestically to be used overseas. This expanded the openness of the bond market to activate the domestic bond market and promote the internationalization of the yuan. With the path opened to raise funds through yuan-denominated bonds, companies such as Mercedes-Benz and the French investment bank Cr?dit Agricole also issued Panda Bonds.

The increase in demand for Panda Bonds is seen as a sign that China's yuan influence expansion is bearing fruit. Since the authorities allowed Panda Bonds in 2005, issuance was stagnant with no issuing companies until 2015. However, starting in 2022, when the government actively improved regulations from the perspective of yuan influence, the issuance scale of Panda Bonds began to increase sharply. Bloomberg explained, "By opening the door for foreigners to access yuan-denominated bonds, it has led to a global increase in demand for the yuan."

However, the Chinese government appears to be concerned that Panda Bonds could potentially cause a depreciation of the yuan against the dollar. If companies convert the funds raised into other countries' currencies, it could put downward pressure on the yuan's value. Gary Ng, chief economist at the French investment bank Natixis, said, "(The issuance of yuan-denominated bonds) may be good news for the internationalization of the yuan, but opinions differ on how it will affect the currency," adding that Chinese authorities will closely monitor the impact of bonds on exchange rates.

This content was produced with the assistance of AI translation services.