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The increasing internationalization of the Chinese yuan is becoming more evident from the financial reports of major lenders, highlighted by their strong performance in cross-border yuan settlements and panda bond underwriting.
Last year, over 30 foreign entities issued panda bonds through one of the country’s leading banks, with total underwriting surpassing CNY38 billion (approximately USD5.5 billion). This bank has maintained its position as the leading underwriter nationwide for the 12th consecutive year, as stated by an executive during the company’s earnings call on March 30th.
Additionally, the bank supported 81 companies in issuing offshore yuan-denominated bonds, with the total underwriting volume exceeding CNY110 billion (around USD16 billion), according to the bank’s financial disclosures.
In terms of cross-border yuan settlement, the bank’s branches handled roughly CNY18 trillion (about USD2.61 trillion) last year, representing about 25% of the overall market. Of this amount, more than 30% was related to goods trade.
The bank’s service coverage for cross-border e-commerce surpassed 80%, with yuan settlements exceeding CNY1 trillion—accounting for over 90% of total transactions in this sector.
Another major bank reported underwriting 46 panda bonds from 28 issuers last year, totaling CNY25.5 billion. It was also the lead underwriter for the first panda bonds issued by a U.S. organization, an African development institution, and a UK-based entity, as well as multiple sovereign panda bonds from Belt and Road Initiative member countries.
This bank’s cross-border yuan settlement business exceeded CNY10 trillion last year.
A third leading bank underwrote 21 panda bonds amounting to CNY13.1 billion, marking increases of 62% and 128% compared to 2024, respectively. Its cross-border yuan settlement business reached CNY6.5 trillion (around USD945.7 billion), demonstrating strong growth.
Panda bonds are yuan-denominated bonds issued by foreign institutions in China. Last year, governments of various nations, international development agencies, financial institutions, and large corporations sold over CNY170 billion worth of these bonds, according to the governor of the People’s Bank of China.
Industry insiders cite China’s low interest rates, the inverted interest rate differential with the U.S., and the opening of China’s bond market to international investors as key reasons for the rising popularity of panda bonds.
The expanded opening of China’s bond market and capital account has made issuing panda bonds more attractive to foreign companies, explained an expert from the Chinese Academy of Social Sciences. The ongoing internationalization of the yuan has also increased the genuine demand for yuan-denominated funding among foreign entities.
Additionally, experts note that China’s relatively low risk-free interest rates and credit spreads make issuing panda bonds cheaper than issuing bonds in the global market. Commercial banks see underwriting panda bonds as an opportunity to earn excess returns. After accounting for hedging costs, this route may be as advantageous as investing in foreign currency bonds.
Looking ahead, the panda bond market is expected to continue expanding, with more diverse participants, according to a research report. Market regulations may be further harmonized with international standards, and innovative products are likely to increase.
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