Panda bonds, unlike the bears, could be poised to proliferate. On Thursday Mitsubishi UFJ, Japan's biggest lender, plans to raise Rmb1bn ($146m) by selling two-year bonds to Chinese investors. Supranational entities have been here before, but MUFG is a landmark: the first renminbi sale by an arm of a proper, non-Chinese company.
This is no thrilling new chapter in the internationalisation of the people's currency. The sale is by the locally-incorporated subsidiary, rather than the Tokyo-based parent, and proceeds must stay within China. Still, it is a gesture towards a deeper domestic bond market. At the moment, issuance is dominated by the government: for every renminbi borrowed by corporates in China over the past three years, central government and quasi-government entities have borrowed five. Domestic banks are almost entirely deposit-funded; senior and subordinated bond issuance averages 1 per cent of total liabilities at the big six listed lenders. A more diverse palette of issuers by sector and parentage must also be good news for buyers. The typical Chinese fixed-income fund, maxing out its exposure to equities, still gets about two-thirds of its annual returns through initial public offerings, estimates Z-Ben Advisors, a fund consultancy.
For MUFG, meanwhile, this is a welcome new source of funding. Without a vast branch network, it has struggled to compete for deposits to lend; annual figures yesterday showed that outstanding Chinese loans fell by 52 per cent, year-on-year – more than five times the average fall across its Asian markets. More fundamentally, it is a step away from Japan. The trends from this year's bank results season are obvious: falling core earnings thanks to slowing loan growth, a further narrowing of loan spreads and continued weak fees and commissions. None of which applies, for now, across the East China Sea.