Panda bonds (RMB-denominated debt issued in China by international issuers) were first launched in 2005 to provide a capital-raising platform for foreign firms targeting domestic investors. The onshore bond structure is frequently compared with dim sum bonds, which are offshore RMB-denominated bonds.
Although people cite panda and dim sum as rival markets, Chang explained that there is no strong connection between two products as their target investors differ. Panda bonds have mainly domestic investors and most dim sum bonds are bought by international investors.
According to a Bloomberg report, issuance of panda bonds was roughly RMB 48bn ($7.25bn) year-to-August compared to RMB 27bn in offshore yuan debt, largely dim sum.
But the increasing issuance of pandas doesn’t mean the appeal of dim sum bonds is fading.
The dim sum market has been slowing due to the depreciation of China’s currency, which erodes the returns of investors, he said.
However, panda bonds have a less active secondary market.
The dim sum market might not be the most liquid, but it is familiar to a network of international investors compared to the panda market, which is generally not liquid in secondary trading within the structure of Chinese Interbank Bond Market (CIBM), he added.
“Dim sum bonds generally offer higher yield [than panda bonds] and are traded in a market where overseas investors can participate with an easier set-up.”
Additionally, the interest rate hikes in the US may have a muted impact on dim sum bonds. “China’s internal development would be more relevant.”
Woon Khien Chia, senior portfolio manager at Nikko Asset Management, also believes the offshore market would remain relevant in the foreseeable future.
“The internationalisation of China’s capital market still heavily relies on a well-established offshore bond market in Hong Kong, Woon said, adding that some offshore bonds mature in 2045, so the market is unlikely to disappear at least until then.
