Reports indicate that multinational corporations are flocking to the Chinese bond market amid rising tensions between the United States and China. This is interpreted as a strategy to preemptively guard against potential financial sanctions and exchange rate risks stemming from the U.S.-China trade war.
According to the Financial Times (FT) and others on the 1st (local time), the issuance of Panda Bonds during the year 2024 reached 1.948 trillion yuan (approximately 38.5 trillion won), marking the highest amount recorded ever, and in the first quarter of 2025, the issuance quantity also reached 416 billion yuan (approximately 8.22 trillion won), the second-highest amount for a quarter.
Panda Bonds refer to bonds issued in yuan by foreign corporations or government agencies in mainland China. According to reports, global corporations that have ventured into issuing Panda Bonds include Germany's Mercedes-Benz, Britain's HSBC, and Singapore's Trafigura.
When corporations issue Panda Bonds, they can take advantage of China's lower interest rates (3.10%), lower than those in the United States, and can raise funds locally within China, thus reducing currency exchange and remittance expenses. As a result, while transferring funds raised abroad to Chinese subsidiaries was common in the past, a recent strategy called 'In China for China' has emerged where funding is raised directly within China.
The widening gap between interest rates in China and the United States, as the yield on China's 10-year government bonds approached historically low levels at the beginning of this year, has also increased the appeal of Panda Bonds. In fact, the average interest rate of Panda Bonds in the first quarter of this year fell below 2%, a significant drop from the 3.4% in 2022.
Terry Zhang, the strategy chief at CSCI Pengyuan, noted to FT that 'global corporations' financial officers are diversifying their funding currencies due to geopolitical uncertainties.' A spokesperson for Mercedes-Benz stated, 'Currency diversification not only benefits our operations in China but also alleviates pressures in existing markets such as the euro and U.S. dollar.'
However, some economists warned that if trade conflicts surrounding tariff policies lead to increased volatility in global financial markets, the Panda Bond market could also shrink. Alicia Garcia-Herrero, chief economist for Asia-Pacific at Natixis, reported that 'recently, overseas Chinese corporations and international organizations have dominated the market, with only a few non-Chinese corporations like those from Germany participating.'
On the other hand, the Panda Bond market has gradually expanded since 2016 when the interest rate gap with the United States began to widen. In 2023, the State Administration of Foreign Exchange (SAFE) announced that issuers could freely remit the funds raised abroad, initiating market activation. However, it still remains smaller than dim sum bonds, which are yuan-denominated bonds issued in Hong Kong for global investors.