Wall Street banks and foreign borrowers are rushing to tap China’s cheap

Foreign governments, Wall Street banks and multinational companies are flocking to China’s domestic bond market as some of the world’s cheapest borrowing costs turn the yuan into an increasingly attractive funding currency.

The yuan-denominated bonds, also known as panda bonds, are sold by overseas issuers in China’s onshore market and have become a major beneficiary of Beijing’s push to internationalize its currency amid a widening gap between Chinese and Western interest rates.

Issuance has accelerated sharply this year, with sovereign borrowers including Kazakhstan and Pakistan joining global financial institutions such as Morgan Stanley and Deutsche Bank, as well as multinational firms including Volkswagen and Henkel. Deutsche Bank, as recently as late May, announced that it raised 3.5 billion yuan ($518 million) through a heavily oversubscribed three- and five-year panda bond offering.

Panda bond issuance has remained robust in recent years. The issuance volume hit a record 197.8 billion yuan in 2024 and totaled 183.1 billion yuan in 2025, according to Moody’s. Issuance exceeded 137.1 billion yuan by the second week of June, up 80.4% from a year earlier.

Panda bond issuance totaled 26.64 billion yuan in May, the highest on record for the month, according to Fareast Credit Rating.

The appeal is straightforward: money is cheap in China.

While borrowing costs in dollar markets remain elevated as the Federal Reserve keeps rates high, China’s prolonged economic slowdown and accommodative monetary policy have left domestic interest rates near historic lows.

Analysts estimate many foreign issuers can raise yuan funding at coupons below 3%, significantly cheaper than comparable dollar borrowing.

“We view the key driver as the interest rate gap: funding in RMB is much cheaper than in U.S. dollars,” Moody’s Ratings told CNBC in an email.

According to the financial risk assessment group, foreign banks issuing panda bonds can borrow at roughly 1.7% to 2.2%, compared with 4.5% to 5.5% in dollar markets, generating interest savings of two to three percentage points.