Panda bond issuance kicks off with a hot start, and bank annual reports reflect the acceleration of RMB internationalization

Ask AI · How does a low-interest-rate environment drive the expansion of the Panda Bond market?

With the intensive release of annual reports from listed banks in 2025, strong momentum for RMB internationalization has become clearly evident. As represented by Bank of China, ICBC, and China Construction Bank, they have turned in results in key areas such as cross-border RMB settlement and underwriting of Panda Bonds.

Pang Gongsheng, Governor of the People’s Bank of China, recently disclosed a set of figures at the 2026 Annual Meeting of the China Development High-Level Forum: in 2025, multiple governments, international development institutions, financial institutions, and large enterprises issued more than RMB 170 billion worth of Panda Bonds. As the pace of RMB internationalization accelerates and China’s bond market opens further, Panda Bonds are becoming an important bridge connecting global capital with China’s financial system.

Judging from issuance in 2026, Panda Bonds have also kicked off with great momentum. Market analysis believes that the domestic low-interest-rate environment, deeper institutional opening, and strong demand for RMB financing among offshore entities together are pushing the Panda Bond market to expand rapidly.

State-owned large banks’ underwriting performance stands out

State-owned large banks are the main force behind Panda Bond underwriting, delivering impressive underwriting results in 2025.

On March 30, at the Bank of China’s 2025 annual results press conference, Vice Governor Yang Jun, when discussing RMB internationalization, said that for a long time, as the main channel for cross-border RMB services, Bank of China has actively promoted progress across various business areas, achieving a series of positive developments. Among them, in 2025, Bank of China helped more than 30 offshore entities issue Panda Bonds, with an underwriting scale of nearly RMB 38 billion, maintaining its position atop the Panda Bond underwriting rankings for 12 consecutive years. It helped 81 issuing entities issue offshore RMB bonds, with an underwriting scale of more than RMB 110 billion.

ICBC’s 2025 annual report shows that in the area of Panda Bond underwriting, the bank achieved multiple breakthrough benchmark projects. It completed a number of benchmark project issuances across the board, including underwriting as lead underwriter the first Panda Bond issuance by a U.S.-funded issuer, underwriting the first Panda Bond issuance by an international development institution from Africa, underwriting the first Panda Bond issuance by a U.K.-funded issuer, as well as underwriting multiple sovereign Panda Bonds along the “Belt and Road.” In total, it underwrote Panda Bonds for 28 issuers in 46 tranches, with an underwriting scale of RMB 25.5 billion.

China Construction Bank’s Panda Bond underwriting business also achieved leapfrogging development. In 2025, the bank underwrote 21 tranches of Panda Bonds, with a total size of RMB 13.1B; the number of underwriting periods and issuance size increased year-on-year by 61.54% and 128.34%, respectively.

In addition to the explosive growth in the Panda Bond market, as the main channel for cross-border RMB services, state-owned large banks have continued to intensify efforts in cross-border RMB businesses, and in 2025 the related business scales all achieved steady growth.

The annual reports show that Bank of China has continuously improved the efficiency and convenience of cross-border RMB payment and settlement. In 2025, the cross-border RMB settlement volume handled by Bank of China’s domestic branches was about RMB 1.8 trillion, accounting for more than 25% of the whole market. The share of cross-border RMB settlement under goods trade exceeded 30%. Service coverage for leading cross-border e-commerce customers exceeded 80%, with RMB settlement volume exceeding RMB 180k, accounting for more than 90%.

ICBC’s cross-border RMB business volume exceeded RMB 1 trillion in 2025; China Construction Bank’s full-year cross-border RMB settlement volume reached RMB 10k, achieving double-digit growth.

Yang Jun said that the position and influence of the RMB are increasingly strengthening, and China’s role in global economic and trade activities is becoming more and more important, laying a solid foundation for the international use of the RMB. The RMB’s value is stable and its credit is reliable, so an increasing number of countries and market participants are choosing to use and transact in RMB. In addition, infrastructure is becoming increasingly well developed, which also provides an important保障 for expanding RMB international use.

Liu Jun, President of ICBC, said at the bank’s results press conference that now it is certain that the internationalization strategy theme for Chinese financial institutions must be RMB internationalization. ICBC plays the role of the main force in the next round of RMB internationalization, and it has a duty to do so.

Why Panda Bonds are being sought after

Panda Bonds refer to RMB-denominated bonds issued by offshore institutions in China’s domestic market. From the issuance of the first batch of Panda Bonds in 2005 to today, the Panda Bond market has a history of more than 20 years.

Since 2026, Panda Bond issuance has clearly increased. In an analysis, CICC said that as of March 20, 2026, the annual Panda Bond issuance volume reached RMB 100k, up 96.8% from RMB 39.6 billion in the same period of 2025. The net increase was RMB 65k, up 113.6% from the same period of 2025. Excluding the impact of a low base in 2025 and factors related to individual-issue issuance, as of now in 2026, the absolute issuance volume of foreign-invested Panda Bonds has reached the highest level in history.

While the market has expanded, the structure of issuers has also shown new highlights, with foreign-invested financial institutions actively participating. CICC said that as of March 20, the issuance volume of pure foreign-invested issuers was RMB 32.1 billion, up 63% from the same period last year. The issuance volume of foreign-invested credit-type issuers was RMB 29.1 billion, up 429% from the same period last year, reflecting strong RMB financing demand from offshore entities.

The key reasons Panda Bonds are being sought after are the domestic low-interest-rate environment, the inverted spread between China and the U.S. interest rates, and the institutional opening of China’s bond market.

When discussing why Panda Bonds are being sought after, Zhang Ming, Deputy Director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, wrote in an article recently that one reason is that there have been important changes in the USD/CNY exchange rate and in the spread between RMB and USD interest rates. In fact, in recent years, not only has the Panda Bond market developed rapidly, but Hong Kong’s RMB loan market and the Dim Sum bond market have also developed rapidly. This indicates that as the USD/CNY exchange rate shows two-way fluctuations, and given that long-term RMB interest rates are significantly lower than USD rates over the same period, the development of RMB debt products is expected to accelerate noticeably.

In addition, the other two reasons are the institutional opening of China’s bond market and the capital account, which strengthens the attractiveness for offshore entities to come to China’s domestic market to issue Panda Bonds, and the continuous advancement of RMB internationalization has significantly enhanced offshore entities’ real demand for RMB funds.

Guo Zairan, a researcher in fixed income at Industrial Bank Research, believes that from the perspective of issuers, in China’s domestic market both the risk-free interest rate and the credit spread are relatively low, so the cost for foreign-invested issuers to issue Panda Bonds in the domestic market is lower than issuing bonds in international markets. From the perspective of investors, investing in part of the Panda Bonds by commercial banks can obtain excess returns, and after deducting the cost of hedging, investing in Panda Bonds may not necessarily be a disadvantage compared with investing in foreign-currency bonds.

A research report on international business credit ratings from China Chengxin Pengyuan International states that looking ahead to the future development of the Panda Bond market, the following characteristics may emerge: first, the Panda Bond market will continue to further expand; second, the issuer base in the Panda Bond market will become even more diversified; third, the rules of the Panda Bond market may further align with international standards; fourth, innovation-related products linked to Panda Bonds may become richer; fifth, the maturity volume of Panda Bonds will increase, and refinancing demand may help drive the expansion of the Panda Bond market.

(This article comes from First Financial)