SALES of panda bonds — yuan-denominated debt sold in China by foreign firms or governments — soared to 130 billion yuan (US$19 billion) last year and could increase another 50 percent in 2017, according to JPMorgan data.

    The bank’s emerging market strategist, Gu Ying, said Tuesday that last year’s sales were close to nine times 2015 levels, though tighter money transfer rules weighed on issuance by foreign borrowers.

    “The size of the panda bond market has been growing very quickly,” Gu said, adding growth was driven mostly by banks, real estate companies and other non-financial corporates.

    Other than Daimler, HSBC and Standard Chartered, however, few issuers were foreign. “If you look at the issuer profile, most of them are overseas subsidiaries of Chinese companies,” he said.

    “Regulators did not encourage issuers to repatriate panda proceeds from China, which could be a concern for some foreign issuers,” he said.

    “The progress in relaxing institutional barriers has been slower than I had expected but, in the second half of 2016, the fact remained that the capital outflow situation deteriorated and that’s why we did not see a big-bang opening.”

    China is grappling to stem an exodus of capital which may have amounted to a record US$725 billion last year, the Institute of International Finance said.

    This is the latest hurdle for the panda market, which was pioneered more than a decade ago but has only taken off over the last couple of years as Chinese policymakers finally allowed foreign issuers into domestic bond markets. It still comprises only a tiny fraction of China’s total onshore bond market, the world’s third biggest.

    Last year, Poland raised 3 billion yuan in panda bonds while the National Bank of Canada became the first North American financial institution to tap that market. Aluminum firm Rusal is planning Russia’s first panda issue.

    “We won’t see a lot of foreign issuers this year but the growth in overall issuance will also slow down,” Gu said, noting that the spike in domestic yields toward the end of 2016 had also curbed local demand for bonds.

    The panda market’s recent popularity has coincided with a decline in sales of dim sum bonds — yuan debt sold offshore in markets such as Hong Kong or London. (SD-Agencies)