China's financial market has experienced a notable upswing in internationalization in recent years.
Since 2015, the opening-up of China's interbank bond market has gained momentum through the issuance of a greater number of panda bonds, or yuan-denominated bonds issued by overseas institutions in the Chinese onshore market, and the involvement of international investors.
By the end of 2023, China's bond market had become the world's second largest, with a total value exceeding $22 trillion, roughly equivalent to 125 percent of that year's GDP.
By the end of September this year, over 1,100 institutions from more than 70 states and regions had participated in China's interbank bond market, with foreign capital holdings totaling 4.4 trillion yuan ($610 billion). The cumulative issuance of panda bonds had surpassed 800 billion yuan, attracting top international issuers and investors and enhancing the openness of China's bond market.
Panda bonds have played an important role in introducing international issuers and investors, enriching the structure of China's bond market and expanding its opening-up to the outside world.
Since its entry into the interbank market in 2016, the New Development Bank has issued 55.5 billion yuan in panda bonds, with an outstanding balance of 39.5 billion yuan, establishing itself as the largest issuer in the panda bond market to date.
The NDB's panda bonds have proved to be high-quality assets for investors, providing them with opportunities to diversify their bond investments.
The NDB mainly uses the funds raised from issuing panda bonds for projects in China. As of the end of June, the bank had approved RMB loans for 15 Chinese projects and one Brazilian project, totaling approximately 38.6 billion yuan.
There is an increasing number of overseas clients discussing RMB borrowing plans with the NDB, and the bank plans to maintain the position as the largest issuer in the panda bond market and remain an important international participant in related financial markets.
It aims to offer high-quality assets to both domestic and foreign investors, positioning itself as an important benchmark for other international issuers to emulate.
The growing popularity of panda bonds shows foreign investors' confidence in the Chinese economy.
The long-term fundamentals of the economy remain sound. In addition, the world's second-largest economy is on track to achieve its full-year growth target, despite facing challenges.
Economic data for the first three quarters of this year indicate that the Chinese government's policies to boost the economy have been effective, while the growth momentum is expected to further accelerate in the rest of the year driven by incremental policies.
In particular, economic activity picked up in September after softening in July and August, with industrial output up 5.4 percent year-on-year in September, compared with 4.5 percent in August, marking the first acceleration in five months.
The bank will actively engage in the panda bond and related financial markets, aiming to set benchmarks for international issuers and bolster the global standing of China's financial market and Shanghai as a financial center.
Additionally, the NDB aims to collaborate with all stakeholders to gradually increase issuance scale and frequency, expand and solidify the domestic and foreign investor base, enhance the liquidity of the secondary market and improve the yield curve in the panda bond market.
Similar to other financial institutions, the funds raised from the NDB's bond issuance will not be immediately utilized for project investment. Consequently, the bank will remain actively involved in both domestic and foreign bond markets to address liquidity management needs.
In line with asset-liability management requirements, the bank will also engage in market transactions involving derivative financial products such as interest rate swaps and currency swaps when issuing bonds for specific projects.
Currently, the Chinese bond market has relatively few international financial institutions, with limited bond issuance scale and frequency. As a result, these institutions are not well-known to most domestic investors, and the potential value of their bonds as high-quality assets has yet to be fully recognized.
The bonds issued by the NDB can be considered a super-sovereign version of policy-based financial bonds.
The NDB has sufficient capital, international preferred creditor status, good asset quality, sound risk management, ample liquidity and firm support from member governments. Because of these factors, the bank has always enjoyed a higher credit rating than that of all other member states and policy financial institutions.
As a result, investors, especially international investors, generally view the bonds of the NDB as high-quality assets.
The bond and derivative financial product markets in some member states of the NDB are large in scale, highly developed, and full of potential.
Moreover, since 2023, the NDB has started issuing bonds in South Africa. As investors increasingly recognize the value of the NDB's bonds, the interest rate of bonds issued in South Africa is already lower than the yield of South African government bonds.
The NDB is actively expanding local bond markets in India and Brazil. In the future, various states' local currency bond markets will enter an era of healthy competition and mutual development.
In the next phase, with the increasing scale of local currency bond issuance of member states, including panda bonds, and the expansion of international payment businesses, the NDB will enhance the level of relevant financial services in member states, foster the development of market tools and mechanisms, promote the opening of member states' capital markets in accordance with international practices, and improve the appeal of China's financial market and Shanghai as an international financial center.
The writer is director-general of treasury and portfolio management at the New Development Bank. He was previously director-general at the international department of the People's Bank of China, and executive director at the International Monetary Fund.
The views do not necessarily reflect those of China Daily.
