Foreign issuers hit brakes on China’s panda bonds as zero-COVID policy creates uncertainty

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Shanghai [China], June 26 (ANI): Amid uncertainty over the zero-COVID policy, foreign issuers have hit the brakes on offerings of China’s panda bonds for investing in Asia’s largest economy.

A Chinese renminbi-denominated bond sold in China but issued by a non-Chinese is known as a panda bond.

As per Nikkei Asia, the issuances of so-called panda bonds for January to June are down half from a year earlier to a six-year low of 7.9 billion yuan (USD 1.18 billion), data from Refinitiv shows.

Only two companies have issued panda bonds in the first half: finance subsidiaries of BMW and Mercedes-Benz Group, down from five issuers a year earlier.


Panda bond issuances hit a full-year record of 32.4 billion yuan in 2021, but this year’s coronavirus resurgence has given issuers pause, reported Nikkei Asia.

While Shanghai and other cities have emerged from the coronavirus lockdowns that disrupted daily life and business activity for two months, the government’s hard-line zero-COVID containment policy hangs like a cloud over the economic outlook.

“There is no knowing when lockdowns may occur going forward,” said Shinichi Seki, a senior economist at the Japan Research Institute.

“Given the risk of sudden factory stoppages or stagnant consumer spending, conditions don’t lend themselves to aggressive investment by foreigners,” added Shinichi.

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The Refinitiv data covers panda bond offerings through June 22 and excludes Hong Kong- and Macao-based issuers.

European automotive companies and financial institutions are the main issuers of panda bonds, which let them control foreign exchange risk as they raise funds for new factories and other investments in China. Issuances of panda bonds have grown since their 2005 debut.

Panda bond offerings rose in 2021 in hopes of a post-pandemic economic recovery, brushing aside the risk posed by China’s real estate market downturn.

But the lockdown in manufacturing hub Shanghai proved harder to ignore. Recent business surveys show shaken confidence among foreign multinationals in China, reported Nikkei Asia.

At the American Chamber of Commerce in Shanghai, 48 per cent of 133 member companies said they would reduce or postpone investment plans in China. Only one company intended to increase investment.

The European Union Chamber of Commerce in China found that 23 per cent of respondents were considering relocating investment in China to other markets.

Moreover, direct foreign investment into China by multinational companies is falling off a cliff as investors are becoming increasingly pessimistic about the Chinese economy amid President Xi Jinping’s strict COVID policies and his stance on Russia’s war on Ukraine.

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These MNCs are facing severe challenges in conducting their businesses in China. A host of political and regulatory issues are being exacerbated by Xi Jinping’s policies which are conspiring to eviscerate the dreams of many multinationals, reported Financial Times. (ANI)

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