China and Kenya have announced that they have elevated their bilateral ties to a “new level” during a meeting between Chinese President Xi Jinping and Kenyan President William Ruto in Beijing in late April. A key feature of the upgraded bilateral arrangement is the proposed issuance of a unique debt security, known as Panda Bonds.
“China is ready to explore cooperation with Kenya on panda bonds in compliance with market rules and relevant laws and regulations,” reads part of a joint statement, ensuring strict adherence to prevailing market regulations and relevant legal frameworks.
What are Panda Bonds?
Panda bonds are Yuan (RMB) denominated bonds issued in China’s domestic market by entities based outside mainland China, including offshore Chinese firms, foreign corporations, financial institutions, and sovereign entities.
Introduced in 2005 by the Asian Development Bank (ADB) and the International Finance Corporation (IFC), the panda bond market has grown steadily, becoming a key tool for international financial integration.
The bigger picture for Africa
In the joint China-Kenya statement both leaders said they were “committed to injecting more stability into the world with the certainty of China-Africa solidarity and cooperation” and to forging an “all-weather China-Africa community”.
This strategic move aims to cultivate novel and diverse avenues for financial cooperation between the two countries.
In the statement, China affirmed its commitment to supporting Chinese financial institutions in establishing branches in Kenya, recognizing the nation’s role as a financial hub within East Africa.
This potential cooperation aligns with broader initiatives to deepen the robust economic and trade relationship, encompassing infrastructure development and the facilitation of increased investment between China and Kenya
China’s declared willingness to explore the issuance of Panda Bonds by Kenya has the potential to open a new financial market for sovereign debt for the benefit of eligible African countries at a time when se3veral of them – such as Ghana – have been shut out of the traditional international capital markets for now because they are at the border line of public debt unsustainability.
On China’s part, Panda Bond issuance by African countries – probably collaterised by issuing countries natural resources that China needs – would offer it access to such resources and just as importantly, would further its ongoing agenda of challenging the global hegemony of the United States dollar in international trading and financial transactions.
