MNI: Panda Market Growth Seen Luring Brazil, Other EM Issuers

China’s yuan-denominated panda bond market could double in size, buoyed by low domestic interest rates and policy efforts to internationalise the yuan, analysts and economists told MNI, adding that issuance from emerging markets including Brazil is likely to increase as trade and financial ties with China deepen. 

Issuance is expected to soon exceed CNY200 billion this year, after jumping to CNY194.8 billion in 2024, and could potentially double the volume in the medium term, said Yang Junhao, vice president of China Chengxin (Asia-Pacific) Credit Rating Company. He cited China’s easing monetary stance, cost advantages over the U.S. and EU, and regulatory reforms simplifying issuance requirements, improving allocation and pricing mechanisms, and enhancing cross-border capital flows since 2024.

Panda bonds – yuan-denominated transactions issued by foreign entities within the mainland markets – have grown rapidly since 2023 due to the widening yield gap with dollar- and euro-denominated bonds. In 2024, issuance rose 26% y/y, with 44 issuers launching 109 bonds at a weighted average maturity of 3.03 years and a weighted average interest rate of 2.33%. The rate has declined to 1.96% in 2025.

Overseas institutions are increasingly drawn to raising yuan funds as the currency gains traction in cross-border payments, foreign-exchange reserves, and financial transactions, said Yang, who is also CEO of China Chengxin Green Finance International. (See MNI INTERVIEW: Yuan To Emerge As Regional Reserve Currency)

INCREASING ISSUERS

People’s Bank of China Governor Pan Gongsheng said earlier this month, during a meeting with Central Bank of Brazil President Gabriel Galipolo, that China would welcome more Latin American countries to issue panda bonds in today’s complex international environment.

Angela Cheng, chief macro strategist at China Galaxy International Securities (Hong Kong), added that the PBOC’s commitment to a stable yuan further supports panda bond growth.

Wu Dan, researcher at the Bank of China Research Institute, noted growing interest from emerging markets in the Middle East and Africa, as well as potential for Latin American countries like Brazil and Argentina to emerge soon as significant issuers.  

Last November, Brazilian paper manufacturer Suzano printed CNY1.2 billion in panda bonds, the first such issuance from Latin America. Yang, whose company provided ratings for the transaction and over 50% of all panda bond issuance, said European firms, particularly from Germany, are expected to maintain a significant presence due to their strong economic and trade links with China. 

USE OF PROCEEDS

Proceeds raised from panda bonds are typically used to refinance offshore debts, including yuan loans and U.S. dollar- or euro-denominated bonds and syndicated loans, and to support overseas green industries, manage corporate reserve pools, and fund general international operations, Yang explained.

AAA-rated issuance accounted for 95.64% of the panda bond market in 2024, with most issuers holding investment-grade ratings from the three major international agencies. However, investors should remain alert to risks, Yang cautioned.

Wu highlighted challenges including exchange-rate volatility, sovereign credit risks, regulatory divergence, and a narrow investor base. (See MNI INTERVIEW: Chinese Firms Should Hedge Dollar Risk-Guan Tao)

Secondary market liquidity also remains limited due to Chinese investors’ preference for high-credit-quality offshore issuers, restricting participation in panda bonds to a small group of institutions in the domestic interbank market, Yang warned.

POLICY EFFORTS

To support further growth, Wu suggested expanding capital flow channels, diversifying forex hedging tools, and improving exchange-rate risk management, while Yang called for integration of the interbank and exchange bond markets, which are currently governed by different rules, investor types, and approval systems. This creates high upfront costs for issuers, he added.

Increased panda bond issuance will strengthen the offshore yuan liquidity pool, providing a firmer foundation for the yuan’s internationalisation, Cheng concluded.