China's panda bonds market is gaining momentum and attracting great interest. The National Association of Financial Market Institutional Investors' (NAFMII) recent move in granting licenses to three foreign banks to be lead underwriters for panda bonds is a positive signal of China's further opening up of its financial market. In an interview with IFR Asia, Shirley Wang and Samuel He of FenXun, Baker McKenzie's Joint Operation platform partner, discuss what lies ahead in 2024 in the panda bonds market and what it means for foreign banks and bond issuers.

Key highlights:

  • The panda bonds market will continue on its growth trajectory this year, considering the relatively competitive coupon rates of panda bonds, the continued internationalization of RMB and refinement of the panda bonds policies by Chinese regulators, as well as the potential refinancing needs from existing panda bonds issuers.
  • The lack of a liquid secondary market could present some challenges, though, which calls for a greater need to improve the liquidity of panda bonds in the secondary market as well expanding the investor base with more international investors and nonbanking investors.
  • We expect that NAFMII will conduct market evaluations on and grant underwriting licenses to more and more foreign banks from time to time in the context of the continued opening up of the China onshore bond market.
  • In relation to dim sum bonds, it is likely to continue to grow in 2024 given that the coupon rates of dim sum bonds are still relatively lower than the coupon rates of US dollar bonds, not to mention growing interest from Chinese investors purchasing dim sum bonds through the Southbound Bond Connect scheme. This presents another great opportunity to foreign banks, particularly as China seeks to expand foreign participation in its onshore bond market.

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