China emerges as source of cheap global funding as Beijing lets more yuan flow offshore

China is increasingly becoming a source of cheap global funding as it allows more yuan to flow offshore, according to new data. Regulators have approved over 40% of panda bonds sold in 2026 to be taken offshore, a record high amount of 130 billion yuan (US$19 billion). Panda bonds are yuan-denominated bonds issued in mainland China by overseas borrowers.

This trend mirrors Japan's experience decades ago, when low yields and a surplus of domestic savings led capital to flow overseas. Subdued inflation and a weak economy in China have further pushed borrowing costs lower than in other countries, while Beijing is also easing its grip on cross-border flows as it seeks a larger global role for the yuan.

China's 10-year government bond yield is currently 1.68%, compared to 5.23% for US Treasuries and 3.09% for Japanese government bonds of the same maturity, creating a significant cost gap. Chinese companies and foreign carmakers have historically raised funds through panda bonds, but now foreign issuers, such as Deutsche Bank, Morgan Stanley, and Credit Agricole, make up 47% of the market, up from 13% three years ago.

The market is growing as more foreign entities, including Australia's Fortescue and Brazil's Vale, consider issuing panda bonds, and Chinese banks are extending cheaper yuan credit across borders. Beijing's approval of panda bond issuers converting proceeds into foreign currencies is part of its push to internationalize the renminbi.

The growing yuan financing market benefits foreign borrowers and encourages more trade, investment, and financing in the Chinese currency, reducing China's reliance on the US dollar-based financial system.