SALES of Panda bonds in China slumped almost 40 percent last year as the government’s tighter money transfer rules and rising market borrowing costs reduced their appeal, but there are some signs sales may get a modest bounce in 2018.

According to data from JP Morgan, Panda bond issuance dropped to 71 billion yuan (US$11 billion) last year from 116 billion yuan in 2016, when it saw an almost nine-fold increase.

Gu Ying at JP Morgan attributed the plunge to several factors, all related to China’s recent efforts to rein in more unruly areas of credit growth.

Calling it a “bear market circumstance” Gu said higher bond yields, or borrowing costs, in Chinese debt markets had “trimmed the attractiveness” of Panda bonds for foreign issuers who had previously been drawn in by their low funding costs.

Benchmark money market rates spiked to almost 5 percent, their highest since 2015, late last year. A clampdown, or in his words some “policy tightening,” on selected Panda bond issuers also had a negative impact, Gu said.

The strong growth in the Panda bond market in 2015 and 2016 was driven mostly by banks, real estate companies and overseas subsidiaries of Chinese companies.

Other than Daimler, HSBC and Standard Chartered, though, few were uniquely foreign. Strict currency outflow controls put in place by the government also complicates repatriation of profits for foreign investors, another big minus for Panda bonds.

There are some hopes though that the restrictions could be loosened this year if the yuan can avoid the kind of lurches it saw in 2015 and 2016 when worries about the health of China’s economy flared. (SD-Agencies)