China strengthen influence through panda bonds market
When the government of the Asian country issues this type of bond what it does is create a debt in yuan to attract investors in the local market
Countries use the mechanism of bond issuance when they require loans or financing. Some examples are “bulldog” bonds issued in sterling pounds; the “kangaroo” bonds in Australian dollars and also the “panda” bonds that are issued in yuan.
In the case of China, with panda bonds, the dynamic consists of placing the papers exchangeable for money and thus issuing a debt in yuan – local currency – that allows them to attract local investors to the domestic market.
Of course, the country must return the capital plus the corresponding interest, which is calculated “according to the level of risk that each country that issues the debt has.”
Portugal recently became the first country in the European Union to issue panda bonds. Poland, for its part, was the first European country to do the same in August 2016. Hungary followed in July 2017, and Italy and Austria are expected to be next.
But it is no coincidence that these countries have become indebted in yuan, since China is one of the countries best positioned in terms of relations and commercial projects. In fact, “it has allocated a wave of funds for large infrastructure projects around the world, including Latin America, where several countries have joined the initiative through memoranda of understanding.”
The list of countries where projects have been launched with China are Panama, Uruguay, Ecuador, Venezuela, Chile, Uruguay, Bolivia, Costa Rica, Cuba and Peru. Panama has pending the issuance of panda bonds announced in 2018. On the other hand, the warning of Donald Trump on the extent of China’s influence in the region is latent.
On the bonds, Rodrigo González, head of the Debt Capital Markets (DCM, for its acronym in English) for America, Standard Chartered Bank said: “Panda bonds are a natural market for governments and companies that need to finance projects of the New Silk Road.“
The Asian country has shown an increase in the participation of international investors in the global market. Currently, China is in third place as the largest bond market in the world, with a volume close to US $ 13 billion.
M.Pino
Source: BBC
