EU nations turning to ‘panda bonds’ 
2019-06-10
EU members Hungary, Poland, Portugal and soon Austria are strengthening ties with China by issuing attractive “panda bonds” that help Beijing raise its profile on international financial markets.
Meanwhile, Italy might join the trend as well.
On May 30, Portugal became the first eurozone nation to issue renminbi-denominated bonds, raising 2 billion yuan (US$280 million) via a three-year instrument at a rate of 4.09 percent.
The offer attracted strong demand and Portugal’s Junior Finance Minister Ricardo Mourinho Felix said that Lisbon’s goal was “to enter a large market with strong liquidity.”
Poland and Hungary have already issued bonds on the Chinese market since 2016. 
Furthermore, Austria and Italy — eurozone members like Portugal — have said they might do so as well.
The cost of borrowing on Chinese markets is much higher than in Europe, however, so the reasons for such a move likely lie elsewhere.
Portugal, which faced problems with financing when it was bailed out by the EU and International Monetary Fund from 2011 to 2014, now can offer less than 1 percent to borrow money for 10 years on European markets.
But by helping China become a bigger actor on the global financial stage, governments can get into Beijing’s good books and attract investment in sectors like financial services and infrastructure. 
The Portuguese port of Sines is interested in attracting Chinese investment as part of Beijing’s Belt and Road network, for example.
“There are also key political or reputational concerns,” notes Liang Si, an Asian debt market expert at French bank BNP Paribas.
“Any kind of sovereign issuer issuing in panda bonds could be seen as a positive political gesture to further establish their ties with China, now the second-biggest economy in the world.”
The bonds have existed since 2005 but they took off four years ago when the Chinese central bank decided to encourage their use as Beijing launched the Belt and Road initiative. 
“Little by little, China is trying to open its market to investors and transform its money into a reserve currency,” said Frederic Rollin, a Pictet AM investment strategy advisor.
The total amount of “panda bonds” issued to date stands at US$48 billion, compared with the overall value of China’s debt market, which is around US$13 trillion.
