Sales of panda bonds jumped to a record US$17 billion so far this year, as foreign borrowers piled into China’s onshore market in search of cheaper borrowing costs.
Global issuers such as Bayer AG, BASF SE and Shangri-La Asia are spearheading the surge, with 10 foreign companies accounting for about 30 per cent of the panda bond sales so far this year, according to Bloomberg-compiled data. The previous record for a comparable period was US$11.8 billion of sales in 2023.
The bonanza reflects how borrowing costs on the mainland have slid as the People’s Bank of China seeks to kick-start growth, while other major central banks keep policy rates high to battle inflation. Proceeds raised by issuing panda bonds can be retained in China or remitted overseas.
“A lot of international companies have been looking at how to actually invest in China, set a footprint and think hard about how to use the onshore capital markets to finance those operations,” said Samuel Fischer, Deutsche Bank’s head of China onshore debt capital markets.
The average borrowing costs for panda bonds — typically sold by offshore units of Chinese companies — have dropped to 2.44 per cent this year, the lowest since they began to be sold in 2005. This week, corporate debt yields sank to record lows after the PBOC cut a key short-term policy rate in the first reduction in almost a year.
Chinese investors, meanwhile, are looking for better returns after government bond yields fell to a more than two decade low, Fischer said.
The increase in interest from foreign firms puts panda bond issuance on track to easily surpass last year’s total of 154.5 billion yuan (US$21.2 billion), which was a record at the time.
While yuan-denominated notes are likely to remain cheaper than debt in other currencies, US central bankers are starting to look to ease policy amid growing confidence that price stability is within sight.
Policymakers have laid the groundwork for a rate cut in speeches over recent weeks, and Federal Reserve Chairman Jerome Powell is expected to flag it more explicitly after a policy meeting on July 30-31.
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