China Morning Missive Today’s topic …. Panda Bonds. The market for non-Chinese entities to raise RMB and the next G7 v. Global South competitive theater. For all the focus on China’s insatiable demand for gold, the underlying strategy has been to build optionality in trade settlement. China created a platform for nation-states to derisk from American treasuries as the global reserve asset. America, however, remains the dominate player in both capital raising and formation. Hoarding gold isn’t about to alter that dynamic especially from a country such as China which has, effectively, a closed capital account. This is where the Panda Bond market comes into play. A venue to raise capital while, potentially, having the added benefit of gaining geopolitical ground. Panda Bonds have been around for two decades, but there was never any material interest or demand. Creating the new fixed income instrument was, at launch, more about expanding overall cross border optionality in capital flows and, with that, viewed by policy makers as a “strategic financial tool”. Strategic indeed! It would now appear as though Panda Bonds have received a new lease on life and could very well be one of the more consequential outcomes from last week’s SCO meeting. During the multi-day confab, Russia and China reached an agreement to move forward with the construction of the Power of Siberia 2 pipeline. There are clear, and rather significant, geopolitical ramifications from this agreement. Those concerns, however, have been downplayed by the Beltway Consensus. With great skepticism, the American Think Tank world isn’t expecting that an actual, final, final, deal will be reached by the parties. Why would there be any doubt? In short, the exorbitant cost to construct. Like the PoS 1, China will only fund the construction of domestic section of the pipeline. There will be no prepayments on future deliveries to Gazprom, the commercial party in the project. The Russian energy giant will need to source its own financing. No easy task in today’s, “Russia is a pariah” environment Well, that financing problem has been solved. A day after the pipeline deal was reached, China announced that Russian energy companies were eligible to raise capital through the issuance of Panda Bonds. This is no coincidence and the development needs to be taken to the next natural extension. China has, in essence, announced the ability to capital raise in RMB by corporations throughout the Global South. This is a marginal move, but the same holds for when China first began leveraging of gold. It’s the China go-to low time preference strategy. Do expect an explosion of new Panda Bonds in the months and years ahead. https://www.reuters.com/business/energy/rosatom-gazprom-explore-sales-chinese-panda-bonds-2025-09-08/