Panda Bond Offshore Usage Ratio Hits Record High as China Becomes Global Low-Cost Funding Source
nashnova research
Over 40% of panda bonds issued this year have been approved for offshore remittance — up to RMB 130 billion ($19 billion), both all-time highs — as China shifts from lending to its own to lending to the world.
Why are foreign borrowers suddenly tapping China?
The driver is the rate gap: China's 10-year government bond yields 1.68%, versus 5.23% in the US and 3.09% in Japan. This means → borrowing the same amount in China can cost roughly a third of what it costs in the US.
UBS issued a RMB 2 billion panda bond in August at a coupon of just 1.78% — a record low for a five-year panda bond by a foreign financial institution.
In plain terms = Chinese capital is now the cheapest among major economies, and foreign issuers are following the price signal.
Who is borrowing? How has the market changed?
Years ago the market was dominated by Chinese companies' offshore entities and foreign carmakers. Today, Belt and Road sovereigns — Hungary, Slovenia, Kazakhstan, Pakistan, Indonesia — plus global banks like Deutsche Bank, Morgan Stanley, and Crédit Agricole have all entered.
Foreign issuers have raised RMB 115.5 billion this year, double last year's full total. Their market share rose from 13% three years ago to 47%. This means → panda bonds are shifting from a niche channel for China-linked firms to a mainstream funding tool for global borrowers.
Australia's Fortescue and Brazil's Vale are both preparing debut panda bonds — a sign the trend is still accelerating.
Are dim sum bonds and bank lending following suit?
Dim sum bonds — renminbi bonds issued outside mainland China — have hit RMB 1 trillion in sales this year, surpassing last year's full-year record. Non-Chinese issuers now account for 35%, up from 23%.
The expansion extends beyond bonds: Chinese state banks are offering more competitive cross-border renminbi loans. State financial institutions in Kazakhstan and Uzbekistan are currently negotiating new RMB facilities.
This reflects a broader pattern: the low-rate dividend is spreading along a "bonds → loans" path, from capital markets into bank credit.
Why are regulators allowing money to flow out?
In late 2022 Chinese regulators introduced rules letting panda bond issuers convert proceeds into foreign currency for use inside or outside China — opening the policy gate for capital outflows.
The renminbi has appreciated over 6% against the dollar in the past year, easing the capital-flight concerns that previously kept the gate shut.
In plain terms = regulators' logic is straightforward: trade surpluses have piled up renminbi domestically — better to lend it out to foreigners and advance RMB internationalization than to let it sit idle.
What is the hidden cost of this cheap money?
Borrowers who need to convert RMB proceeds into other currencies face a hedging cost of roughly 3%. This means → the rate advantage shrinks sharply — a 1.78% coupon plus 3% hedging brings the all-in cost to about 4.8%, narrowing the gap with dollar funding considerably.
But borrowers with existing RMB trade-settlement needs can bypass hedging entirely. Samuel Tse, senior economist at DBS, notes: "You borrow in renminbi, you settle in renminbi — the extra cost stays in your pocket."
The renminbi settled 29% of China's goods trade in the first half of this year, up one percentage point year-on-year. This reflects a gradually widening pool of borrowers who can genuinely capture the low rate "for free."
Can this market keep expanding?
The key variable is whether the RMB trade-settlement share keeps rising — the higher the share, the more borrowers can sidestep hedging costs, and the more durable panda bonds' appeal becomes.
At 29%, more than seven-tenths of China's trade is still settled in dollars or other currencies — putting a ceiling on how many borrowers can actually benefit from the low-rate dividend.
Put simply = China's money is genuinely cheap, but whether you can use it — and use it cost-effectively — depends on how much business you do with China. That is the question that sets the ceiling for the panda bond market.
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