(Yicai Global) May 29 -- China will issue new guidelines to spur the panda bond business of overseas governmental institutions and international development organizations. The total amount of these yuan-denominated bonds from overseas institutions issued in China will hopefully continue to grow after the new rules emerge.

This will benefit foreign institutions' fundraising in China and their use of its currency in the world, while spurring the two-way circulation of capital.

China's Financial Stability and Development Committee under the country’s cabinet the State Council will issue 11 measures on the financial reform in the near future, it said on May 27. It will further improve the requirements for disclosure of information about panda bonds, specify the rules for their issuance and encourage those with authentic demand for yuan funds to issue the debt instruments, thus stably boosting the growth of the panda bond market.

Panda bonds are renminbi-denominated notes sold by a non-Chinese issuer in onshore China. Washington, DC-based International Finance Corporation and Manila-headquartered Asian Development Bank successively issued the first batch of the bonds in the inter-bank market in October 2005. The volume of panda bonds tallied about CNY389.5 billion (USD54.4 billion) by the end of March, with about CNY274 billion of them now in circulation, according to statistics from Beijing-based Golden Credit Rating International.

Panda bond market growth has been steadily gaining momentum in both the ends of supply and demand in recent years, noted Shen Jianguang, chief economist at Beijing-based e-commerce giant JD.Com’s JD Finance fintech arm, adding the demand for entry of overseas institutional investors into China’s debt market for investment has steadily surged, with their participation and investment ratio in panda bonds being far beyond that in other types of Chinese corporate credit and bond products.

The frequency of global use of yuan has also constantly climbed in lockstep with the demand for panda bond issues by international development institutions and foreign governmental organizations since 2016, when the International Monetary Fund included yuan in its basket of Special Drawing Rights.

Detailing the mechanisms, processes and requirements for panda bond issues by foreign governmental bodies and global development organizations aims to make up for the weak points in the systemic structure of the bond market and also sends the policy signal of firmly and pragmatically boosting its opening and will enhance global recognition of panda bonds and yuan internationalization, Shen continued.

SDR are an international monetary reserve currency the International Monetary Fund created in 1969 that supplements member countries’ money reserves.

Editor: Ben Armour