Authors: Riccardo Hu, Matteo Hu
With the increasing globalization and growth, China’s bond market value has been steadily growing, with its size lower only to the US one. As one of the main sources to attract foreign capital to China, certain bonds have taken on all sorts of uncanny and funny names in the Chinese Market: Dim Sum bonds, Dragon bonds, kung fu bonds, Panda bonds, and so on. Let’s take a closer look at some of these bonds.
Dim Sum Bonds are bonds issued outside of China, mostly in Hong Kong, that are denominated in Chinese renminbi rather than the local currency. The name derives from “Dim Sum”, a Chinese style of cuisine which involves serving a variety of small dishes and snacks.
The dim sum bond market has become a solution for international investors who desire to participate in the Chinese renminbi market. In fact, it allows investors to join the market while avoiding China’s capital controls restrictions. Multinational companies can also issue dim sum bonds to professional investors without seeking the approval from Hong Kong authorities and People’s Republic of China.
Dragon Bonds are Asian corporate bonds (excluding Japan) denominated in foreign currency, with Chinese corporations as one of the leading issuers. Contrary to the Dim Sum Bonds, it is a method for foreign investors to invest without having to worry about the currency risk, as they are usually denominated with a stable currency, such as the US dollar or the Japanese Yen.
Panda Bonds are bonds issued by overseas issuers (primarily based in Asia and Europe) within mainland China, denominated in Chinese renminbi. They are mainly used by foreign companies to finance their projects in China while not being exposed to currency risk.