Wall Street banks and foreign lenders rushed to tap China’s money

Foreign governments, Wall Street banks and multinational corporations are flocking to China’s domestic bond market as some of the world’s cheapest borrowing costs turn the yuan into an attractive financing currency.

Yuan-denominated bonds, also known as panda bonds, are sold by overseas issuers in China’s offshore market and have been major beneficiaries of Beijing’s push to internationalize its currency amid a widening gap between Chinese and Western interest rates.

Issuance has increased significantly this year, as private borrowers including Kazakhstan and Pakistan join global financial institutions such as Morgan Stanley and Deutsche Bank, as well as multinational firms including Volkswagen and Henkel. Deutsche Bank, as recently as late May, announced that it had raised 3.5 billion yuan ($518 million) in an oversubscribed three- and five-year panda offering.

Panda bond issuance has remained strong in recent years. The volume of issuance reached a record 197.8 billion yuan in 2024 and reached 183.1 billion yuan in 2025, according to Moody’s. Output exceeded 137.1 billion yuan in the second week of June, an increase of 80.4% over last year.

Panda bond issuance totaled 26.64 billion yuan in May, the highest in the month’s history, according to Fareast Credit Rating.

The appeal is straightforward: money is cheap in China.

While borrowing costs in dollar markets remain high as the Federal Reserve keeps rates high, China’s prolonged economic slowdown and local monetary policy have left domestic interest rates near historic lows.

Analysts estimate that many foreign issuers could raise yuan funding with coupons of less than 3%, much cheaper than comparable dollar borrowing.

“We see the main driver as the interest rate gap: funding in RMB is much cheaper than US dollars,” Moody’s Ratings told CNBC in an email.

According to the financial risk assessment group, foreign banks that issue panda bonds can borrow at about 1.7% to 2.2%, compared to 4.5% to 5.5% in the dollar market, making interest savings of two to three percent.

That cost-effectiveness has effectively turned the yuan into a support currency, analysts say, echoing the role the Japanese yen has played in global finance for decades.

“It’s an old idea of ​​the yen,” said Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis. “Cheap money.”

Moody’s estimates that foreign issuers now account for about half of panda bond issuance volume this year, up significantly from the past few years. Financial institutions remain the dominant group, followed by private and senior borrowers, while international companies with large operations in China are also increasingly influencing the market.

“Wall Street banks are increasing RMB lending to support the growing use of the yuan in international trade settlements,” said Dan Wang, China director at Eurasia Group. “Banks need more RMB debt and RMB asset holdings to remain important relationship banks and market makers for China-linked clients.”

However low prices alone do not explain the recent increase in emissions. For years, foreign interest in panda bonds was hindered by one major obstacle: financial regulation.

Issuers could raise the yuan within China, but moving the proceeds outside the mainland was often difficult and subject to legal uncertainty. That makes panda bonds particularly attractive to companies with large operations within China.

What has changed is Beijing’s growing willingness to allow greater flexibility in how the proceeds are spent, according to experts. Natixis’ Herrero said the expansion of restrictions marks a major change in policy thinking.

“China has not allowed the outflow of money [previously],” he said. “China is ready now. China wants to make money abroad.”

The policy change is particularly important for sovereign borrowers such as Kazakhstan and Pakistan, which have little reason to appreciate the yuan unless revenues can eventually be repatriated outside of China.

The latest sign of Beijing’s commitment came on Wednesday, when People’s Bank of China Governor Pan Gongsheng announced new measures allowing overseas banks and sovereign wealth funds to access yuan liquidity using Chinese bonds as collateral, and further strengthening the infrastructure supporting the use of RMB overseas.

Peter Alexander, founder of Z-Ben Advisors, said the panda bonds should be viewed alongside China’s efforts to expand the use of the Cross-Border Interbank Payment System, which is part of the SWIFT messaging network, while encouraging yuan-denominated asset sales and deepening offshore RMB markets.

“The whole Panda Bond market has been building steadily over the last two years,” said Alexander. “It should be widely viewed as an important part of Beijing’s strategy to internationalize the RMB.”

Few expect the momentum to dissipate soon. Analysts have pointed to a glut in China’s banking system, expectations that US interest rates will remain relatively high, and continued policy support from Beijing as factors supporting issuance over the rest of the year.

Analysts say the biggest risks include a sharp reduction in interest rate differentials, significant fluctuations in the yuan or unexpected policy changes by Chinese regulators.