Move signals RMB's international role in financing, investment expanding

The first sovereign panda bond issuance by Pakistan — priced at a historically low coupon rate — highlights the growing potential of China's capital market to provide diversified and lower-cost financing channels for developing economies, experts said.

The issuance not only opened an avenue for Pakistan to secure continued access to renminbi financing, but also may set a precedent for more Belt and Road economies to lower financing costs through China's bond market at a time when energy-related inflation pressures are driving up global borrowing costs, they said.

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Pakistan issued its first sovereign panda bond — RMB-denominated debt instruments issued by overseas governments or institutions in China's onshore capital market — on Thursday, marking the first panda bond issuance by a South Asian economy.

The issuance totaled 1.75 billion yuan ($257 million), with a three-year tenor and a coupon rate of 2.5 percent. China Economic Net reported the 2.5 percent coupon was "the lowest Pakistan had achieved on a sovereign bond", a point confirmed to China Daily by China International Capital Corp (CICC), the lead underwriter and book runner for the deal.

The 1.75 billion yuan issuance — whose proceeds will finance sustainable development projects in Pakistan — was oversubscribed more than fivefold and marked the first tranche under Pakistan's newly established 7.2 billion yuan panda bond program.

Pakistan's Minister for Finance and Revenue Muhammad Aurangzeb said he is confident that the 7.2 billion yuan panda bond program would provide Pakistan with a strong platform for future issuances, further deepening financial connectivity and sustainable economic cooperation between China and Pakistan.

Liu Chunsheng, an associate professor of international economics at Central University of Finance and Economics, said the issuance highlighted the unique role China's bond market can play in providing lower-cost financing and diversified funding channels for international issuers amid rising global inflation and elevated borrowing costs.

"With China's interest rates remaining relatively low and RMB assets increasingly showing safe-haven attributes, the panda bond's 2.5 percent coupon was far below the cost of Pakistan's US dollar bonds, which could reach roughly 7 to 8 percent under some circumstances, helping significantly reduce interest costs," Liu said.

Despite Pakistan's long-term sovereign credit rating being in the speculative-grade category at B — by S&P Global Ratings, the bond received an AAA issue rating, supported by an innovative partial guarantee structure under which the Asian Infrastructure Investment Bank and the Asian Development Bank provided guarantees covering 95 percent of the bond's principal and interest payments.

Analysts said the enhanced credit profile helped significantly lower the bond's coupon rate and improve investor acceptance.

Paul Rui, director at the Investment Banking Department of CICC, said that the partial guarantee arrangement — the first of its kind in China's onshore bond market — helped lower entry barriers and could offer a replicable model for other developing economies.

"Many emerging market economies have strong financing demand in infrastructure, green transition and livelihood development, but often face challenges such as ratings, investor recognition and issuance structures when entering a new market for the first time.

"This transaction combines a sovereign issuer, multilateral development institution-backed credit enhancement, sustainable development-oriented funding purposes and access to China's renminbi bond market, providing a reference model for more Belt and Road economies seeking to enter China's bond market," Rui said.

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The issuance also signals the RMB's expanding international role in financing and investment. The People's Bank of China, the country's central bank, said panda bond issuances reached 84.24 billion yuan in the first quarter, a strong momentum after issuances totaled 183.06 billion yuan in full-year 2025.

PBOC Deputy-Governor Xuan Changneng said last month that tensions in the Middle East had increased global financing costs and debt pressures for developing economies, calling for improved global sovereign debt governance and support for developing countries in addressing debt challenges through development.

Ji Haisheng and Xu Wei contributed to this story.

Contact the writers at zhoulanxv@chinadaily.com.cn