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Multinational companies are flocking to China’s bond market at a record rate as they try to secure cheaper financing and hedge against deteriorating relations between Beijing and the US.
So-called panda bond issuance — renminbi borrowing by overseas companies in mainland Chinese markets — hit Rmb194.8bn ($26.5bn) in 2024, the highest level on record for a full year. In the first quarter of this year it reached Rmb41.6bn, its second-best quarterly issuance since the World Bank and Asian Development Bank sold the first such bonds in 2005.
Mercedes-Benz, HSBC and Trafigura are among the foreign groups that have driven the wave of fundraising. Many companies are keen to take advantage of Chinese interest rates that are much lower than those elsewhere, for instance in the US and Europe.
The issuance marks a shift in strategy by global companies to issue debt for their China subsidiaries locally, rather than raising funds abroad and then transferring the money to their Chinese unit. Analysts say this so-called “in China for China” strategy could help foreign groups reduce transaction costs — or even hedge against potential financial restrictions on their local units if the US-China trade war escalates.
“Geopolitical uncertainties are adding pressure on global CFOs and treasurers to consider diversifying the currencies they use for financing, in further boosting the supply of panda bond issuance”, said Terry Zhang, head of global strategy and business management at CSCI Pengyuan, a rating agency in China.
Joerg Wuttke, partner at DGA-Albright Stonebridge Group and former president of the EU Chamber of Commerce in China, said issuing debt locally meant Chinese banks held a share of an international company’s “China risk”.
“European companies do prefer to hold debt on their local country balance sheet,” he added.
“The diversification does not only benefit our Chinese operations, but it also takes off pressure from our funding levels in the established markets such as euro and USD,” said a Mercedes-Benz spokesperson.
“We are generally trying to fund in the markets we are active in and support their development . . . Especially in times of trade tensions and market volatility, with our panda bonds we are happy to have access to additional funding sources at attractive rates.”
HSBC directed the Financial Times towards a statement released in November 2024 following a Rmb4.5bn bond issuance in which the company said the funds would be used to “support businesses’ growing demand for RMB, and broader RMB internationalisation”.
Trafigura did not respond to a request for comment.
China’s 10-year sovereign bond yields are close to the record low they hit in January, amid concerns about the domestic economy falling into a deflationary spiral. That has increased the gap in borrowing costs with the US, which investment bankers say has made panda bonds an attractive fundraising route.
The average coupon rate has dropped below 2 per cent in the first quarter of 2025 from 3.4 per cent in 2022, according to data from provider Wind, which has increased interest in issuing this form of debt.
“There is to be continued interest from foreign firms to issue panda bonds this year due to low rates,” said Zhang Xing, debt capital markets head at investment bank China International Capital Corporation.
The panda bond market remains far smaller than the so-called dim sum bond market — renminbi-denominated debt issued in Hong Kong and available to international investors.
“Panda bond issuance is something the Chinese government wants to develop generally,” said Christopher Li, Asia credit trading desk analyst at BNP Paribas, in reference to Beijing’s push to develop its capital markets and increase usage of the renminbi.
“It gives [foreign] issuers an alternative way of funding [their operations] and does offer investors a higher yield than local [sovereign and corporate] bonds,” he added.
Some foreign governments are also looking at issuing panda bonds. Hungary said last month it intended to sell debt in mainland China this year.
Panda bond issuance started to take off after 2016 as benchmark interest rates in the US and China diverged. In 2023, China’s State Administration of Foreign Exchange, which regulates the foreign exchange market, said issuers could freely move proceeds offshore.
But some economists warn that more volatile global economic conditions sparked by US President Donald Trump’s erratic tariff regime could soon put the brakes on panda bond issuance.
Alicia García Herrero, chief Asia-Pacific economist at Natixis, said issuance was likely to fall in the coming months because of a more volatile renminbi exchange rate.
Most issuance this year has been offshore Chinese companies and multilateral organisations such as the New Development Bank, she added, with only a few German and other non-Chinese companies entering the market.