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https://asia.nikkei.com/Business/Markets/Bonds/China-panda-bond-market-flashes-economic-warning-sign?fbclid=IwAR3R5yXPirIe8hNfrRXTWRpRXr9BXDG3LSUsl_7ptavjKFPb1t0X9quVemo
China panda bond market flashes economic warning sign
Issuances fall by half from last year as zero-COVID policy creates uncertainty
TOKYO/SHANGHAI-- Foreign issuers have hit the brakes on offerings of yuan-denominated bonds in China this year in a sign of heightened caution over investing in Asia's largest economy.
Issuances of so-called panda bonds for January to June are down half from a year earlier to a six-year low of 7.9 billion yuan ($1.18 billion), data from Refinitiv shows.
Only two companies have issued panda bonds in the first half: finance subsidiaries of BMW and Mercedes-Benz Group, down from five issuers a year earlier.
Panda bond issuances hit a full-year record of 32.4 billion yuan in 2021, but this year's coronavirus resurgence has given issuers pause.
While Shanghai and other cities have emerged from the coronavirus lockdowns that disrupted daily life and business activity for two months, the government's hard-line zero-COVID containment policy hangs like a cloud over the economic outlook.
"There is no knowing when lockdowns may occur going forward," said Shinichi Seki, a senior economist at the Japan Research Institute. "Given the risk of sudden factory stoppages or stagnant consumer spending, conditions don't lend themselves to aggressive investment by foreigners."
The Refinitiv data covers panda bond offerings through June 22 and excludes Hong Kong- and Macao-based issuers.
European automotive companies and financial institutions are the main issuers of panda bonds, which let them control foreign exchange risk as they raise funds for new factories and other investments in China. Issuances of panda bonds have grown since their 2005 debut.
Panda bond offerings rose in 2021 on hopes of a post-pandemic economic recovery, brushing aside the risk posed by China's real estate market downturn.
But the lockdown in manufacturing hub Shanghai proved harder to ignore. Recent business surveys show shaken confidence among foreign multinationals in China.
At the American Chamber of Commerce in Shanghai, 48% of 133 member companies said they would reduce or postpone investment plans in China. Only one company intended to increase investment. The European Union Chamber of Commerce in China found that 23% of respondents were considering relocating investment in China to other markets.