China Increases Global Use Of Yuan Via Loans and Panda Bonds

By Rhod Mackenzie

Beijing has successfully managed to increase the use of the yuan on the global stage. It is currently offering its debtors the opportunity to convert their dollar loans into yuan. This strategy is already a success as Kenya has already consented to this proposal and stands to save several hundred million dollars on its loan repayment . Also Chinese so called 'Panda Bonds' have seen a surge in popularity. Each new agreement contributes to the yuan's increased international circulation.
The People's Republic of China is currently offering debtor countries the opportunity to convert some of their dollar loans into loans denominated in Chinese currency. In exchange, borrowers receive substantial lower interest rates thereby saving money.

For instance, Kenya has already agreed to convert its laons taken out for the construction of its railway sysytem and is currently  saving $215 million annually in debt servicing. Ethiopia is currently in discussions with China regarding the potential conversion of a portion of its $5.38 billion debt into yuan-denominated loans.

Another of China's major debtors on the African continent, Zambia, is also considering switching from dollar-denominated loans to yuan-denominated ones. "Any initiative that can meaningfully reduce the debt burden and generate savings is, naturally, of interest to us," stated their Finance Minister Situmbeko Musokotwane.
According to Yufana Huang of the China-Africa Studies Initiative (Johns Hopkins University), there is potential for a number of countries including  Laos, Djibouti, Congo, Mozambique, and Senegal to follow the "Kenya model".
"China's strategy of converting dollar loans to yuan is not a new development; rather, it is a consistent, long-term policy.
The yuan's expansion commenced in the late 2000s. In 2016, the IMF included the yuan in the Special Drawing Rights (SDR) basket, thereby granting it the status of a freely usable currency.
Concurrently, China has been developing and continues to expand its banking network and the CIPS international payment system. It is evident that the financial infrastructure requires users, and this can be accomplished through debt restructuring to other countries," says Mikhail Gordienko, professor in the Department of Sustainable Development Finance at Plekhanov Russian University of Economics.
This approach is mutually beneficial. The borrower can mitigate the risk of default by adjusting the loan terms to their advantage, while the lender can boost demand for its currency and maintain the demand for its institutions, Gordienko adds.

"While the US was dealing with inflation by increasing its base rate, China maintained low rates in the face of deflationary trends. Consequently, borrowing countries receive lower interest rates from China than they do from the dollar. Furthermore, emerging markets gain access to a more predictable source of funding and the ability to restructure their debt more flexibly," says Erlan Abdikarimov, Director of Financial Analysis at Freedom Finance Global.

A significant number of countries have already borrowed from China, and they are now all benefitting from the restructuring of their yuan-denominated debts. According to the World Bank's classification, as many as 78 of the poorest countries are indebted to China to the amount of approximately $67 billion. Conversely, if these loans are converted into yuan at lower interest rates, it will provide these countries with much-needed fiscal space, while China will incur no losses. Conversely, the yuan's share of global debt is projected to rise.

China has implemented a number of strategies to promote the use of the yuan on a global scale. These include the conversion of US dollar bond issues into yuan bonds, as well as the expansion of the People's Bank of China's swap lines network.

This year, Hungary and Kazakhstan issued yuan-denominated "Panda Bonds" for the first time. Sri Lanka has received a $500 million loan in Chinese currency for the construction of a major highway, and Indonesia is preparing its first offshore yuan denominated  bond issue.
By October 2025, governments, state-owned banks, and international organisations had raised twice as much yuan through loans and bonds, totalling approximately 68 billion yuan ($9.5 billion), as they did in all of 2024. The People's Bank of China also has currency swaps with approximately 30 countries. This instrument facilitates settlements in yuan without the use of the dollar.

China's strategic objective is to consolidate the yuan's position as a major global currency, particularly in relation to the dollar. As a result, Beijing has reduced its holdings of US government debt by hundreds of billions of dollars, while simultaneously promoting its own holdings of its own government debt.

"A number of conditions could see China catch up with the US debt market. These include full yuan convertibility and the removal of capital controls. Other necessary steps could be legal reform, increased regulatory independence, and the creation of a transparent, competitive environment for private and foreign participants. However, a full financial account opening could potentially destabilise the domestic market, where debt levels are high and banks are reliant on government financing. Therefore, China is choosing a gradual path — moving toward greater openness while avoiding shocks," says Abdikarimov.
China continues to implement stringent capital controls, with the People's Bank of China overseeing the management of the yuan's exchange rate. This curtails its free circulation and makes the currency less appealing to international investors, especially for long-term bond investments, the source adds.

The challenge of displacing the dollar continues to be a significant issue. "However, China is proactively pursuing the establishment of a multicurrency system in which the yuan strengthens its position in settlements and lending, thereby creating a 'yuan zone' of influence, without aspiring to become a single global reserve currency. This is a step towards a more multipolar financial architecture, where China becomes a centre of power, but not a new hegemon," Abdikarimov believes.

The Bank for International Settlements (BIS) has reported that global yuan turnover has reached $817 billion per day, closely approaching the British pound. The Chinese currency's share of global foreign exchange transactions has reached 8.5%, compared to 7% in 2022. By comparison, the pound has declined from 12.9% to 10.2%. It is evident that the yuan has firmly established itself as the fifth-largest currency in the world by trading volume, and is increasingly closing the gap with the pound sterling.

"The introduction of each new yuan settlement agreement, and the issuance of each bond, results in an increase in the volume of Chinese currency in international circulation. This will enhance the yuan's status. Offering more favourable terms allows China to exert economic influence over the debtor country and build mutually beneficial cooperation with it, taking into account all the circumstances of the interaction."Mikhail Gordienko is quoted as saying:
Swap lines provide access to yuan without the need to purchase currency on the open market. There are precedent-setting agreements in place, for instance between the People's Bank of China and the ECB, which stipulate the allocation of 350 billion yuan and 45 billion euros by 2025. Gordienko concludes that this practice directly contributes to the internationalisation of the yuan, creating an additional official channel for its use in international settlements and strengthening trust in the currency.