[Text/Observer Network Wang Yi] The financial industry is becoming a new growth point of China-Brazil cooperation. The Financial Times reported on June 9 that against the background of the United States initiating a global trade war, the Lula government of Brazil is striving to further strengthen trade and investment relations with China, and is expected to issue its first sovereign bond in the Chinese market as early as this year.
Dario Durigan, deputy minister of Brazil's Ministry of Finance, told the newspaper that Brazil plans to issue new sustainable development bonds in the U.S. and European markets this year, and will also issue panda bonds in China.
Durigan revealed that the EU hopes to negotiate with Brazil to expand bilateral trade "in terms of transactions or allowing Brazil to issue bonds in Europe," and "the same thing could happen in China."
Deputy Minister of Brazil's Ministry of Finance Dario Durigan Foreign Media
The Financial Times said that at present, Brazil mainly raises funds through domestic investors, and only less than 5% of its public debt is denominated in other currencies, most of which are in US dollars. Last week, Brazil issued international bonds for the second time this year, newly issuing bonds totaling $2.75 billion, including $1.5 billion in five-year US dollar bonds with a yield of 5.68%, and another $1.25 billion of bonds maturing in 2035 with a yield of 6.73%.
Brazil last issued euro-denominated bonds in 2014 and has not yet issued any renminbi-denominated bonds. As China-Brazil cooperation deepens into the financial sector, there have been continuous reports in recent months that Brazil is considering issuing panda bonds to promote the diversification of financial partnerships and reduce reliance on traditional Western financial systems. Durigan's remarks seem to confirm these reports.
Panda bonds are renminbi-denominated bonds issued by offshore institutions in the Chinese market, allowing non-Chinese entities to raise funds without worrying about currency fluctuations.
A researcher at Boston University's China Program pointed out that the issuance of additional panda bonds is a win-win strategy for both the issuer and China. The issuer benefits from China's low-interest-rate market environment, reducing financing costs and easing debt pressure, while China can use it to promote the internationalization of the renminbi and further open up its bond market.
In order to curb inflation, the Central Bank of Brazil announced on May 7 that it would increase the benchmark interest rate by 50 basis points to 14.75%, reaching the highest level since August 2006, causing borrowing costs in Brazil to continue rising. Roberto Secemski, an economist at Barclays Bank, said that Brazil is one of the countries with the heaviest debt burden among emerging markets, with the total government debt-to-GDP ratio reaching 76%.
Issuing renminbi-denominated bonds is expected to alleviate this debt pressure. Panda bonds are denominated in renminbi, with their face interest rates based on China's domestic interest rates, such as the Shanghai Interbank Offered Rate (SHIBOR) and China Government Bond yields, traditionally lower than those of bonds denominated in developed country currencies. BlueBay analysts pointed out that issuing renminbi bonds is cheaper than issuing Brazilian real bonds, with the interest rate for 10-year bonds possibly as low as 2%.
The researcher at Boston University stated that increasing the issuance of panda bonds also brings many benefits to China. First, it promotes the internationalization of the renminbi and further opens up China's bond market; it can mobilize private financial resources to invest in developing countries, providing opportunities for Chinese private investors to participate in overseas investments; finally, by attracting private creditors to participate through investing in panda bonds, it can optimize the structure of China's overseas investments, which is beneficial for China to conduct debt restructuring negotiations.
In recent years, the development speed of the panda bond market has accelerated, becoming one of the important drivers of renminbi internationalization. CCTV News reported that the issuance subjects of panda bonds now cover various types of institutions such as international development agencies, foreign governments, offshore financial institutions, and non-financial enterprises, with regional coverage including Asia, Europe, Africa, North America, and South America. Recently, the breakthrough of issuance subjects in Latin America and Africa has continued to show the effectiveness of panda bonds in promoting international financial cooperation between China and Latin America, Africa, etc.
On May 14, Governor Pan Gongsheng of the People's Bank of China said at a panda bond seminar for Latin America held in Beijing that China and Latin American countries, represented by Brazil, have achieved fruitful results in financial cooperation, making positive contributions to economic and trade cooperation, financial stability, and economic growth between China and Latin America.
He stated that facing the current complex and severe international situation, China and Latin America should advance financial cooperation in broader fields and deeper levels, jointly meet challenges, and welcome more outstanding market entities from Latin America to issue panda bonds in China.
In 2024, the annual issuance volume of panda bonds in the interbank market was approximately 185.8 billion yuan, with a market size close to 300 billion yuan. In the first four months of this year, the cumulative issuance scale of panda bonds reached 62.2 billion yuan, maintaining rapid growth momentum.
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