THE government will soon introduce clear guidelines for Panda bonds, a senior official said yesterday, in a move to boost the use of the yuan asset and encourage greater foreign participation in the country’s bond market.

Pan Gongsheng, deputy governor of the People’s Bank of China and head of State Administration of Foreign Exchange, said that the new guidelines will simplify onshore issuance by offshore institutions and allow offshore issuers more flexibility in using the issuance proceeds onshore or offshore.

Panda bonds, yuan-denominated debt issued by foreign borrowers, make up a small fraction of China’s US$11 trillion onshore bond market. Foreign entities have issued Panda bonds worth more than 160 billion yuan (US$24 billion) on the interbank market as of the end of May, Pan said.

Interest in Panda bonds has remained limited in part because of unclear rules over issuer qualification and the movement of proceeds.

Pan also said issues standing in the way of wider Bond Connect adoption, including questions about the taxation of offshore investments in onshore bonds, would be clarified soon.

China has the world’s third largest bond market, which is growing rapidly and opening wider to overseas investors.

Risks on the country’s bond market are overall controllable, the central bank has said, commenting on recent bond defaults.

The new defaults emerged after regulators toughened up supervision, while the bond default rate was low, the statement said.

Last year, China issued bonds worth 40.8 trillion yuan, up 12.9 percent from the previous year, according to central bank data.

(SD-Agencies)