Offshore borrowing in China’s currency has reached a record high as international companies and foreign governments increasingly seek to tap into China's low interest rates. Year-to-date issuance in renminbi-denominated “dim sum” and “panda” bond markets has totaled approximately 149 billion yuan ($21.5 billion), surpassing last year’s record levels, according to calculations based on market data.

Dim sum bonds are issued outside mainland China, while panda bonds are sold within mainland China but denominated in renminbi by foreign entities. Both markets have benefited from government support as Beijing aims to expand the renminbi’s global role and challenge the dominance of the U.S. dollar in international finance.

The appeal of borrowing in renminbi has grown amid a significant divergence in borrowing costs between China and the United States. A 10-year Chinese government bond currently yields around 1.68%, compared with nearly 4.78% on a similar U.S. Treasury security, a gap approaching its widest on record. This interest rate differential has encouraged entities to raise renminbi debt for more affordable financing.

Domestic Chinese issuers have also contributed substantially to the dim sum market, accounting for nearly two-thirds of issuances this year, often using proceeds to finance overseas operations. Market participants describe investor demand as robust, driven by growing practical needs such as funding investments in China or settling payments in renminbi.

The expansion of the Bond Connect scheme earlier this year, allowing greater mainland investor access to Hong Kong’s offshore bond market, has further bolstered issuance. This has enabled onshore insurers and other institutional investors to participate more actively, particularly in longer-term dim sum bond offerings. Notably, companies like Tencent have issued bonds with maturities of 10 and 30 years.

Within China, a large pool of domestic savings coupled with limited investment options has increased demand for fixed-income assets, despite weakening credit growth and lower yields on Chinese government bonds. Panda and dim sum bonds offer slightly higher yields and longer durations, attracting banks and insurance companies seeking to deploy capital.

While sovereign borrowers including Indonesia, Slovenia, Pakistan, and Kazakhstan have issued panda bonds in the past year, most growth has been driven by banks. Deutsche Bank highlighted the prominent role that Chinese and foreign banks are playing in this expansion, with recent examples including UBS raising 2 billion yuan through panda bonds in its market debut.

Despite this momentum, multinational corporations have been less active in issuing renminbi debt. Market participants cite the relatively small size of bond issuances as a deterrent, as many global firms seek larger transactions near $1 billion to match their financing needs. Attracting large Chinese institutional investors to offshore renminbi bonds remains a challenge due to regulatory and marketing barriers.

Although the renminbi’s share of global finance remains limited, the currency has gained ground in trade finance and offshore loan markets. However, its role as a reserve currency is still modest, with some fund managers citing low yields on Chinese government bonds as a reason for not increasing exposure.

Analysts suggest that the rapid growth of dim sum and panda bond markets might mark the beginning of the renminbi’s emergence as an international funding currency, potentially mirroring the trajectory once experienced by the Japanese yen amid decades of low interest rates.

“Low interest rates make a currency attractive for funding purposes,” said Hui Shan, chief China economist at Goldman Sachs, noting parallels with Japan’s experience in previous decades. As issuers and investors adjust to evolving market dynamics, the offshore renminbi bond market appears poised for further development.