by Qaiser Nawab, Chairman BRISD
From cheaper funding to financial diversification, panda bonds are becoming a new channel for governments seeking alternatives to dollar financing.
BEIJING, China Economic Net (July 24) – This week, Indonesia moved from speculation to execution. The government successfully issued 7 billion yuan (around US$1.03 billion) in yuan-denominated Panda Bonds on July 23, marking its first entry into China’s onshore bond market.
The offering received total orders of around 17 billion yuan, resulting in an over-subscription ratio of 2.4 times, reflecting strong appetite from investors in China’s capital market. The bonds were issued in two tranches: a three-year tranche worth 5.6 billion yuan and a five-year tranche worth 1.4 billion yuan. Finance Minister Purbaya Yudhi Sadewa said Jakarta could consider a larger follow-up issuance if the debut transaction performs well.
Indonesia has also secured a top onshore rating of AAA with a stable outlook from China Lianhe Rating, while its international ratings remain at Baa2 from Moody’s and BBB from S&P and Fitch. The transaction marks a milestone: Indonesia has become the first Southeast Asian sovereign issuer of Panda Bonds—one more name on a list that has grown remarkably crowded this year.
The underwriting syndicate signals how much weight Chinese banks are placing on the deal: Bank of China is lead underwriter and bookrunner, with ICBC, CITIC Securities, CICC and DBS acting as joint leads. Indonesia has additionally secured approval to issue up to 30 billion yuan (around US$4.43 billion) in panda bonds over the next two years.
Panda-bond issuance overall has been booming this year, and sovereign governments are a small but fast-growing part of that story. Slovenia and Kazakhstan (twice, through both its treasury and its sovereign-wealth fund) made their debuts, joining repeat issuers like Hungary; Pakistan priced its own debut in May, and Brazil filed to join the queue in June, hoping to become the first Latin American sovereign to issue.
The roll-call of foreign-government issuers has a decade behind it. For most of that decade the list grew slowly, one new name every year or two. Then, from mid-2025, it suddenly did not: new entrants and repeat issuers alike began arriving in quick succession. That the pace changed so abruptly, and that Beijing is plainly treating the new arrivals as strategy rather than accident, is the puzzle worth explaining.
The most obvious answer is price. China’s ten-year government bonds yield around 1.74%, against roughly 4.70% in America, a gap of nearly 300 basis points that has held since 2022. Emerging-market treasuries that might otherwise pay 5% or more in dollars can borrow far more cheaply in yuan, even after swapping proceeds back into dollars or local currency. Coupons on sovereign panda bonds have compressed accordingly, from 3.2% on Poland’s issue in 2021 to 1.89% on Slovenia’s this year. On a $5 billion issue, a couple of percentage points is tens of millions of dollars saved annually—the arithmetic that got Mr Purbaya on a plane.
But cost alone does not explain why the queue of sovereign issuers stayed so short for so long. The deeper change is institutional. A rule change at the end of 2022 let issuers freely remit proceeds abroad, removing sovereign treasuries’ biggest practical objection to a bond whose proceeds had previously been hard to get out of China. A second overhaul, in January 2024, rewrote approval procedures specifically for foreign-government issuers, cutting a process that once moved at the pace of diplomacy down to the pace of a bond deal.
Xiao Yu, economist, associate research fellow of the Chinese Academy of Social Sciences (CASS), describes the shift as one from a “niche pilot” to a normalized financing channel. He notes that sovereign decisions must clear cabinets and bilateral relationships, which is why the effects of both reforms showed up with a lag, arriving conveniently just as the rate gap widened to its most attractive point.
There is a geopolitical layer too. With dollar markets choppier amid Federal Reserve uncertainty and Middle East tensions, several issuers describe the yuan as an unusually stable place to raise money right now. Deutsche Bank, the top foreign underwriter of panda bonds for six consecutive years, has helped German industrial giants—Volkswagen, Mercedes-Benz, BMW, BASF—issue panda bonds less for arbitrage than as a natural hedge, borrowing in the currency in which they already earn revenue from their vast Chinese operations.
Sovereign issuers are motivated less by urgent funding needs than by long-term positioning. Pakistan’s finance minister Aurangzeb framed its debut explicitly as deepening a financing partnership with China, as RMB now settles roughly a quarter of bilateral trade, up from single digits five years ago. Indonesia expects the debut could eventually open the door for Indonesian banks and state firms too.
Zheng Fupeng, deputy general manager of the global markets department at ICBC, sums up the mood from inside the market as a shift “from a factor-driven approach to an institutionally driven one.”
Underneath the price and the mechanics sits a subtler argument about what these bonds are actually for. Mr Xiao frames panda bond issuance as the third and deepest of three complementary channels pushing RMB internationalization. Trade settlement keeps the currency circulating offshore; currency swaps between central banks widen its use as crisis liquidity. Panda bonds do something different: they put yuan liabilities onto a sovereign government’s own balance sheet, a foreign treasury choosing to owe China’s currency, year after year, rather than merely accept it in payment.
When looking ahead to the next five years, Xiao expects developing countries, emerging market economies and multilateral development institutions to remain the main drivers of panda bond growth. These potential issuers share two common characteristics: many have traditionally relied heavily on dollar financing and experienced funding pressures during Fed tightening cycles, encouraging them to diversify their debt financing sources; meanwhile, they maintain close and long-standing trade and economic links with China.
In that reading, 2026’s issuance is less a rush for cheap money than a marker of the yuan’s slow move from a trade-settlement tool towards something closer to a reserve and financing currency.
None of which means the yuan is about to unseat the dollar. Mr Xiao is candid that China’s capital account remains only partly open by design, not by oversight: retaining some capital controls, he argues, preserves China’s monetary policy independence, in the classic trade-off economists have described since Robert Mundell and Marcus Fleming. The panda-bond market still works within that constraint rather than against it. Secondary-market liquidity is thin, most deals still run just three years, and credit-rating coverage lags far behind Western markets. Should the Federal Reserve eventually cut rates faster than the People’s Bank of China, the arbitrage that drew so many sovereigns to Beijing this year could narrow just as quickly as it opened.
What the numbers capture, then, is smaller than a currency revolution but larger than a footnote. Pakistan’s five-times-oversubscribed book, Kazakhstan’s twin issues, Brazil’s application, Indonesia’s debut sale—each is a finance ministry choosing, deal by deal, to hold yuan liabilities rather than simply accept yuan payments. Multiply that choice across a growing list of treasuries, and the trade-settlement currency of a decade ago is gradually taking on a new role as a financing currency. Indonesia prices its bond on July 23rd. The queue behind it is the real story.(***
Author: Qaiser Nawab is Chairman of the Belt and Road Initiative for Sustainable Development (BRISD), an international platform fostering cooperation and innovation across Asia, Africa, and Latin America. He can be reached at qaisernawab098@gmail.com
