HSBC's 4.5 Billion Yuan Panda Bond: A Boon for Chinese Currency Globalization

HSBC's recent issuance of a 4.5 billion yuan panda bond signals a growing interest in the globalisation of the Chinese currency. This trend is driven by several factors, including China's economic resilience, the renminbi's stable fundamentals, and the currency's increasing importance in global payments. According to SWIFT data, the renminbi became the fourth most active currency for global payments by value in November 2023, with a share of 4.61%. The currency's share in global payments increased by 34.87% over the previous month, outpacing other major currencies. This growth can be attributed to China's efforts to realise more trade settlements in RMB, geopolitical concerns, bilateral currency swaps, and the increasing number of RMB clearing centres offering more RMB liquidity offshore. Additionally, China's economic power, with GDP growth estimates of 5.4% in 2023 and 4.6% in 2024, further elevates the RMB's international importance. Despite the complicated global economic environment and foreign exchange market volatility, the RMB's exchange rate has remained relatively stable, consolidating the groundwork for its internationalisation.

The yield differential between US Treasuries and Chinese government bonds has been widening, reaching around 190bp for the 10-year mark and 220bp for the three-year. This divergence makes it attractive for foreign corporates with natural renminbi needs or seeking low funding costs to consider the Panda bond market. For instance, Egypt sold a Rmb3.5bn 3.51% three-year sustainable issue, the largest ever sovereign Panda bond, demonstrating the competitive terms achievable through this market. Volkswagen also issued a Rmb1.5bn 3.05% two-year Panda bond, further expanding its renminbi funding channels.



The issuance of HSBC's 4.5 billion yuan panda bond is a testament to the growing appeal of the Panda bond market for global issuers. The removal of regulatory uncertainty over the use of proceeds and the widening yield differential between onshore and offshore markets have contributed to this trend. The Panda bond market is expected to continue growing, with more foreign issuers attracted by the potential for lower funding costs and a policy push by the Chinese government. As the renminbi gains increasing international importance, the globalisation of the Chinese currency is set to continue, with Panda bonds playing a significant role in this process.