Can the Historic Opportunity for RMB Bond Internationalization Sustain?

Overview

This is an in-depth analysis by Goldman Sachs' Asia Economics Team exploring what historic opportunities the internationalization of the RMB bond market faces, and whether the current boom in Panda and Dim Sum bond issuances can be sustained. The report examines the historical cycles of both markets, analyzes the drivers and structural differences of this expansion, references international experiences with USD, EUR, and JPY, and finally provides judgments on the long-term potential of RMB bond internationalization. The core conclusion is: While the current expansion of RMB bonds is a historic opportunity, financing cost advantages alone are insufficient to sustain long-term internationalization; it requires cooperation from structural conditions such as economic fundamentals, market depth, investor access, hedging tools, and cross-border trade links.

Core views

The core issue of the report is whether the over 60% year-over-year growth in Panda and Dim Sum bond issuances in H1 2026 marks a historic inflection point or a unsustainable cyclical rebound. Goldman Sachs' overall judgment leans towards cautious optimism: defining the current period as a historic opportunity for RMB bond internationalization, while explicitly stating that financing cost advantages can only initiate the process, not independently support its long-term continuity. The historical paths of the two markets differ significantly but are driven by the same set of factors. The first boom cycle of the Dim Sum bond market occurred between 2011 and 2014, primarily driven by RMB appreciation expectations—from June 2010 to the end of 2013, the RMB appreciated against the USD by about 11%. Coupled with a scarcity of investable RMB assets, Hong Kong RMB deposits grew from less than 100 billion to approximately 1 trillion yuan, creating strong demand for Dim Sum bonds. However, after the 2015 exchange rate reform, RMB depreciation and the repatriation of CNH funds led to a significant contraction in the Dim Sum bond market between 2015 and 2017. The second round of expansion starting in 2022 shifted to being driven by financing costs: RMB interest rates were lower than those of the USD and EUR, prompting issuers to proactively shift to RMB bonds due to cost considerations. The report uses a time-series chart of exchange rates and spreads to illustrate that the pre-2020 Dim Sum bond issuance cycle closely matched exchange rate trends, whereas this current expansion is more tightly linked to the advantage of RMB funding costs. The development of the Panda bond market has been more fragmented. Launched in 2005, issuance was sporadic for the first decade. A narrow, real-estate-dominated boom occurred in 2016, with real estate issuance reaching 68 billion RMB, accounting for about 51% of the annual total. The institutional reason behind this was that many mainland real estate developers used offshore holding companies established in the Cayman Islands or Bermuda as issuers, while assets and repayment capabilities remained concentrated in the mainland. Additionally, lower issuance thresholds in the exchange market and relatively low onshore financing costs contributed. However, after tightening of financing rules at the end of 2016 and deleveraging pushing up domestic interest rates, real estate Panda bond issuance plummeted from 68 billion in 2016 to 21 billion in 2017. The current expansion starting from 2023 is built on a more institutionalized regulatory framework: a unified issuance framework was introduced in the interbank market in 2018, and new fund management regulations effective in 2023 explicitly allowed proceeds to remain onshore or be remitted offshore, and also permitted issuers to hedge currency risks onshore. The proportion of issuances allowing proceeds to be remitted offshore rose from 10-15% before 2023 to nearly half in 2025 and H1 2026. Diversification of issuer structure is the biggest difference between this cycle and previous ones. In the Dim Sum bond market, short-term issuance by LGFVs declined significantly after regulatory tightening in 2024; the share of overseas financial institutions increased, and Chinese tech and internet companies occupy a meaningful share in medium-to-long-term Dim Sum bonds. Report data shows that the proportion of financial institutions in total Dim Sum bond issuance dropped from 48% in 2014 to 34% in 2025, while the combined share of industrial and TMT sectors rose from 9% to 21%. Unrated issuance still accounts for a large portion (about 53% of the full year in 2024), with about 70% coming from LGFVs. On the investor side, banks dominate: in large Dim Sum bond transactions in 2024-25, banks and financial institutions were allocated about 55%, asset management and funds 25%, and sovereign and official institutions 16%, forming a conservative investment pattern favoring high credit ratings. In the Panda bond market, the share of real estate developers plummeted from 51% in 2016 to 1% in 2025, while the share of utilities rose from 8% to 20% (driven mainly by China Power International Development), and consumer staples rose from 7% to 18% (with Mengniu contributing about half). The share of international issuers rose from 21% in 2016 to 45% in 2025, with sovereign borrowers (such as the New Development Bank) accounting for 55% of non-Chinese issuer volume. On the investor side, asset management products remain the largest holding group, but their share in the outstanding stock of interbank Panda bonds decreased from 55% at the end of 2020 to 40% at the end of 2025. During the same period, the share of domestic banks rose from 21% to 29%, broker holdings also increased, and foreign institutions hold about 15%. The report uses outstanding stock sizes and market depth to illustrate that both markets still have a large gap to mature regional markets. As of the end of 2025, Panda bond outstanding stock was about $60 billion and Dim Sum bonds about $208 billion, compared to the Asian G3 bond market of approximately $1.4 trillion; China's domestic corporate bond market is about $5 trillion, with financial bonds and government bonds at approximately $6.2 trillion and $5.8 trillion respectively. Single-issue sizes in the primary market are still significantly smaller than G3 bonds, secondary market liquidity is thin, and the credit spectrum is narrower. Panda bond issuance in H1 2026 was 160 billion RMB, and Dim Sum bonds were 358 billion RMB, both significantly exceeding the pace of 2022-25.

Analysis framework

The report adopts an analytical framework combining historical cycle comparison and international experience benchmarking. The specific path is: first, reconstruct the complete historical cycles of the Dim Sum bond and Panda bond markets from inception to boom and then contraction, identifying key driving factors (policy, exchange rate expectations, relative financing costs) behind each cycle; then compare the current cycle item-by-item with historical cycles to judge the uniqueness and structural differences of this expansion; next, quantify the maturity gap of the two markets using market depth indicators (outstanding stock size, issuance scale, tenor, credit spectrum, investor structure); finally, introduce the internationalization experiences of the USD, EUR, and JPY as a reference system to evaluate the long-term potential of the current RMB bond expansion within a historical coordinate. The core methodology is to separate cyclical factors (financing costs, exchange rate fluctuations) from structural factors (economic fundamentals, institutional frameworks, market infrastructure); the former explains short-term issuance fluctuations, while the latter determines whether long-term internationalization can be sustained. This reflects a typical framework combining cyclical attribution with structural judgment.

Methodology notes

• Cycle and Prosperity FrameworkProsperity Inflection Point Analysis

  Distinguishing cyclical factors from structural factors driving bond issuance

  The report views exchange rate expectations and relative financing costs as cyclical driving factors, and regulatory systems, market infrastructure, and investor access as structural factors. Cyclical factors explain the ups and downs of the Dim Sum and Panda bond markets historically, while the reason this round is different is that structural conditions have improved.

• Industry/Industrial Analysis FrameworkSupply and Demand Framework

  Supply and demand dynamic analysis between issuers and investors

  The report explains the boom and contraction of the bond market from two dimensions: the supply side (issuer structure, regulatory environment, financing cost preferences) and the demand side (investor groups, funding sources, risk appetite). For example, in the first Dim Sum bond boom, the supply side was constrained by a scarcity of investable assets, while the demand side was driven by RMB appreciation expectations.

• Macroeconomic frameworkMonetary-Credit Quadrant

  Driving framework for international monetary status

  When analyzing the internationalization experiences of the USD, EUR, and JPY, the report essentially applies a multi-dimensional driving framework for currency internationalization: domestic economic strength, financial market depth, investor access, regulation and hedging tools, and cross-border trade links. The breadth of currency usage is determined by these structural dimensions, while cyclical factors like interest rates and exchange rates only affect short-term share changes.

• Event Gaming and Behavioral FinanceExpectation Gap/Expectation Management

  Driving asset demand through RMB appreciation expectations

  When analyzing the first Dim Sum bond boom, the report emphasizes that RMB appreciation expectations pushed up the expected return on holding RMB assets, thereby amplifying the demand for offshore RMB assets. When expectations reversed, demand shrank rapidly, demonstrating the leverage effect of unilateral exchange rate expectations on asset allocation.

• Fixed Income and Credit Analysis

  Credit spectrum/Issuer and investor credit risk preference structure analysis

  The report characterizes market credit depth by distinguishing the proportions of investment-grade, high-yield, and unrated issuers. The Dim Sum bond market is dominated by investment-grade issues with a high proportion of unrated LGFVs; this narrow credit spectrum reflects an immature bond market, limiting secondary market liquidity and pricing efficiency.

• Valuation methods

  Spread-driven financing cost arbitrage analysis

  The report uses spreads to explain why issuers choose RMB bonds. For example, in the first Dim Sum bond boom, onshore RMB funding costs were once over 100 basis points higher than offshore costs; while the core driver of this current expansion is that RMB interest rates are lower than USD and EUR rates, making RMB financing costs attractive. The size and direction of spreads directly influence cross-border financing directions.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Dim Sum Bond Market (Offshore RMB Bonds)

  Benefiting from incremental demand brought by RMB's relatively low financing costs and the expansion of Southbound Bond Connect

  Strengths

  Increased diversification of issuers, lengthening of tenors, declining interest rates, increased participation from overseas financial institutions and tech companies

  Weaknesses

  Thin secondary market liquidity, narrow credit spectrum, high proportion of unrated LGFVs, market scale far smaller than G3 markets

  Comparison

  Compared to Panda bonds, Dim Sum bonds have a larger outstanding stock (approx. $208 billion vs $60 billion), but both are far smaller than the Asian G3 bond market of approx. $1.4 trillion

  Risks

  If RMB financing cost advantages reverse or RMB exchange rate volatility intensifies, issuance volumes may contract

• Panda Bond Market (Onshore RMB Bonds)

  Benefiting from the 2023 new fund management regulations allowing proceeds to be remitted offshore, clearer issuance rules, and lower domestic interest rates

  Strengths

  Significant increase in international issuer share (from 21% to 45%), utilities and consumer staples sectors filled the void left by real estate exit, increased participation from domestic banks and brokers

  Weaknesses

  Small outstanding stock, short issuance tenors, limited single-issue capacity, lack of cross-issuer credit differentiation in domestic AAA ratings

  Comparison

  Compared to Dim Sum bonds, Panda bond issuer structure has shifted from real-estate-dominated to utility and international sovereign-dominated, with significantly improved flexibility in use of proceeds, but smaller market scale

  Risks

  If domestic regulatory policies tighten again or rising rates re-narrow the offshore/onshore spread, the issuance cycle may see contraction again

• RMB Interest Rate Bonds/Government Bonds (CGB)

  As the benchmark yield curve for the RMB bond market, the decline in their yields is an important background for the decrease in financing costs for Panda and Dim Sum bond issuances

  Strengths

  Declining yields reflect loose monetary policy and low inflation environment, lowering overall RMB financing costs

  Comparison

  RMB government bond yields being lower than USD and EUR markets is the core spread factor driving cross-border issuance towards RMB

Key data

• H1 2026 Panda Bond Issuance Volume160 billion RMBYear-over-year growth exceeded 60%, setting a record high for the same period, significantly higher than the 2022-25 pace.
• H1 2026 Dim Sum Bond Issuance Volume358 billion RMBYear-over-year growth exceeded 60%, setting a record high.
• Dim Sum Bond Outstanding Stock (End of 2025)Approx. $208 billionCorresponds to approx. 1.578 trillion RMB, significantly lower than the Asian G3 bond market of approx. $1.4 trillion.
• Panda Bond Outstanding Stock (End of 2025)Approx. $60 billionCorresponds to approx. 495 billion RMB, relatively small scale.
• Asian G3 Bond Market Outstanding StockApprox. $1.4 trillionServes as a benchmark for mature regional markets.
• Change in Dim Sum Bond Weighted Average TenorRose from 3.3 years to 5.8 yearsExcluding LGFVs, issuance significantly lengthened tenors from Q4 2023 to Q2 2026.
• Change in Panda Bond Weighted Average TenorRose from 2.4 years to 3.0 yearsTenors gently lengthened during the same period, but remain significantly shorter than G3 bonds.
• Weighted Average Issuance Yield of 3-Year Dim Sum BondsDropped from 3.5% to 2.1%Financing costs decreased significantly, reflecting lower RMB benchmark rates.
• Weighted Average Issuance Yield of 3-Year Panda BondsDropped from 3.5% to 1.8%Financing costs decreased significantly, reflecting lower RMB benchmark rates.
• 2016 Real Estate Panda Bond Issuance Volume68 billion RMBAccounted for approx. 51% of total Panda bond issuance that year, plummeting to 21 billion in 2017.
• Proportion of International Issuers in Panda Bond IssuanceRose from 21% in 2016 to 45% in 2025Sovereign borrowers (e.g., New Development Bank) accounted for 55% of non-Chinese issuer volume.
• Proportion of Financial Institution Issuance in Dim Sum BondsDropped from 48% in 2014 to 34% in 2025Combined share of Industrial and TMT rose from 9% to 21%, diversifying issuance structure.
• Proportion of Unrated Issuance in Dim Sum Bonds (2024)Approx. 53%About 70% came from LGFVs, reflecting a narrow credit spectrum.
• Allocation Ratio of Bank-type Investors in Dim Sum Bonds55%In large transactions in 2024-25, banks and financial institutions were allocated approx. 55%, asset management/funds 25%, and sovereign institutions 16%.
• Peak Share of JPY in International Bond Outstanding StockApprox. 18%Mid-1995, subsequently dropped to approx. 2%, showing that currency internationalization cannot be maintained solely by low financing costs.

Impact & implications

The report believes that the current prosperity of Panda and Dim Sum bonds has标志性 strategic significance for RMB internationalization, representing a true historic opportunity, but its long-term implications depend on the realization of structural conditions. In the short term, the fact that RMB interest rates are lower than USD and EUR provides genuine financing incentives to issuers. Coupled with the expansion of Southbound Bond Connect, the improvement of offshore RMB derivatives and bond yield curves, market demand and issuer participation are expected to continue improving. Landmark events such as Pakistan's first Panda bond issuance, Portugal becoming the first Eurozone sovereign to issue offshore RMB bonds, and Bank of America setting records in offshore issuance indicate that RMB bonds are gaining actual usage from third-country borrowers and investors. However, Goldman Sachs' economic analysis clearly emphasizes a layer of caution: USD experience shows its dominance is built on a strong US economy, deep domestic markets, and an offshore ecosystem supporting third-country trade and financial activities; EUR demonstrates that regional integration can create market scale but may not translate into equally broad global usage; JPY serves as a warning that relying solely on financial liberalization and low issuance costs can create a lame duck financing currency, whose share will quickly retreat when economic fundamentals and investor support weaken. If the RMB bond market remains at a stage driven only by spreads, its status will be subject to domestic and international spread cycles and economic cycles; only if the central bank continues to promote institutional opening, market depth, and investor diversification, while forming continuous, habitual usage by third-country issuers and investors, can truly sustainable internationalization be achieved.

Risks

• The advantage of RMB financing costs may disappear as monetary policy cycles reverse, weakening the motivation for cross-border issuance
• RMB exchange rate volatility or a reversal of appreciation expectations could trigger another wave of offshore fund repatriation, repeating the Dim Sum bond market contraction of 2015-17
• Thin secondary market liquidity and insufficient single-underwriting capacity constrain the ability to absorb large-scale financing demands
• Narrow credit spectrum (dominated by investment-grade, lacking high-yield) limits pricing efficiency and the breadth of participation by overseas issuers
• Domestic regulatory policies (such as additional restrictions on short-term offshore financing by LGFVs) may tighten again, affecting issuance structure

What to watch

• The sustainability of third-country borrowers and investors' use of RMB bonds (e.g., subsequent actions of new issuers like Pakistan and Portugal)
• Whether the expansion of Southbound Bond Connect and the depth of the offshore RMB yield curve will bring substantive improvements in secondary market liquidity
• Trends in the spread of RMB relative to USD/EUR, and the stability of CNH financing costs
• Implementation and effects of subsequent PBOC policy tools (e.g., offshore RMB liquidity facilities, cross-border bond repos, resumption of government bond futures)
• Whether the proportion of Panda bond proceeds remitted offshore for use can remain high, serving as a signal of the sustainability of institutional opening