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A bank employee counts Chinese renminbi notes next to US dollar bills on Jan. 25, 2023, at a Kasikornbank branch in Bangkok. (Reuters/Athit Perawongmetha)
Indonesia's latest return to China's capital market has been met with overwhelming demand as the government successfully issued two tranches of yuan-denominated Panda Bonds totaling 7 billion yuan (Rp 18.6 trillion or US$1.1 billion) to help finance the 2026 state budget. The offering was oversubscribed by 2.4 times, underscoring continued confidence in Indonesia's fiscal outlook. However, the timing of the issuance has also attracted attention, as it comes amid heightened scrutiny over Indonesia's economic relations with major global powers.The appeal of Panda Bonds lies in their ability to offer Indonesia a lower-cost alternative to conventional United States dollar-denominated debt. The latest issuance carried coupons of 1.90 percent for the three-year tranche and 2.19 percent for the five-year tranche, significantly below Indonesia’s recent US dollar global bonds, which carried coupons of 4.35 percent for the five-year tranche and 4.95 percent for the ten-year tranche.
While the comparison is subject to currency considerations, the difference highlights the advantage of accessing China’s domestic bond market as an additional source of financing. The issuance also comes amid China’s broader efforts to internationalize the yuan by expanding its role in global trade and financial markets. As part of this effort, the Chinese government has sought to deepen the use of yuan-denominated financial instruments, including by encouraging foreign governments and institutions to tap its domestic bond market through Panda Bonds. Indonesia was therefore entering a market where Chinese authorities had strong incentives to attract high-quality foreign issuers, particularly sovereign borrowers, as part of efforts to strengthen the yuan’s international profile.
