Ma and Kidney | Renminbi internationalisation closing the climate finance gap

As the United States renounces its climate commitments, a chain reaction of wavering pledges and scaled-back investments by other donors and multilateral institutions has followed.

This trend raises the stakes for everyone else, underscoring the urgency of closing the financing gap for climate adaptation and mitigation in the developing world.

Fortunately, China has increasingly been projecting itself as a source of alternative, low-cost funding for climate and sustainability projects across the Global South. Its outreach features a trifecta of interconnected, renminbi-denominated bond markets: the onshore panda bond market, the offshore dim sum bond market, and the FTZ or free-trade-zone offshore bond market.

The recent growth of these markets has been nothing short of remarkable. In the first three quarters of 2025, offshore entities raised nearly CN¥120 billion (US$17 billion) in panda bonds and CN¥667 billion in dim sum bonds, according to Wind, a Chinese financial data provider.

Meanwhile, the FTZ offshore bond market’s cumulative issuance had reached US$18 billion by September 2025. Together, these figures indicate a significant surge in international capital mobilisation through renminbi-denominated channels.

Many countries are already using these markets to support their own sustainable development strategies. For example, in 2021 and 2022, Hungary issued a total of CN¥3 billion in green sovereign panda bonds to finance renewable energy and clean transportation projects in central and eastern Europe.

And this year, OTP Bank became the first Hungarian private entity to issue an offshore renminbi-denominated bond, raising CN¥900 million through a green dim sum bond. Meanwhile, Egypt issued a CN¥3.5-billion sustainable panda bond in 2023 – the first of its kind in Africa – with backing from the African Development Bank and the Asian Infrastructure Investment Bank.

These examples demonstrate how Chinese capital markets can support domestic sustainability goals elsewhere.

The three platforms form a complementary ecosystem for foreign issuers, each serving a distinctive role.

The panda bond market is the onshore workhorse, granting direct access to China’s vast pool of domestic liquidity.

The dim sum bond market provides an agile, offshore alternative in global financial hubs like Hong Kong and Singapore, which is prized for its flexibility.

And uniquely positioned between them is the FTZ offshore bond market, which operates from within Chinese free-trade zones like Shanghai and Guangdong. FTZ bonds are issued under more relaxed capital and foreign-exchange rules, while offering closer integration with China’s domestic financial system than offshore dim sum bonds do.

This trifecta offers a coordinated solution for Global South borrowers. Panda bonds are best suited for large-scale projects like solar farms and wastewater plants; dim sum bonds meet both long-term funding needs , with maturities of up to 15 years, and shorter-term demands like urgently needed renewable installations and disaster resilience; and FTZ bonds facilitate cross-border collaborative projects.

Together, they are channelling South-South investment into the climate investments that traditional finance has retreated from, all while advancing the renminbi’s internationalisation and promoting sustainable development.

While private dollar-based finance shuns climate projects in many developing countries – owing to the perceived risks and demand for high returns – renminbi-denominated bonds offer a lower-cost alternative, anchored by China’s sustained low-interest-rate environment. In 2025, three-year AAA-rated panda bonds carried a yield of just 2.5 per cent to 2.8 per cent, a mere 27.6 basis points above Chinese government bonds. This stands in stark contrast to the five-to-six per cent range, or higher, demanded by holders of many emerging-market dollar-denominated bonds of comparable tenor and credit risk.

Egypt’s inaugural panda bond was issued with a three-year maturity and a yield of 3.51 per cent, plus full guarantees from two multilateral development banks. This stands in sharp contrast to the country’s three-year Sukuk, which offered a yield of 11.63 per cent in early 2023.

On the corporate side, the Brazilian pulp giant Suzano issued CN¥1.2 billion in green panda bonds in 2024, facilitated by the Bank of China. The proceeds were earmarked for certified eucalyptus plantations that sequester carbon while protecting native forests. Crucially, this three-year bond carried a 2.8-per-cent yield, which translates into a much-lower cost of capital, after currency hedging, compared to Suzano’s typical dollar-bond funding.

Yet, another advantage lies in strategic bundling, a form of financing that can pair capital with China’s established expertise in green technologies and project execution. Borrowers can secure access to the same cost-competitive suppliers and EPC or engineering-procurement-construction contractors that have made China the world leader in clean-energy infrastructure.

Given these advantages, a joint study by the Institute of Finance and Sustainability and the Climate Bond Initiative calls for concrete measures to unlock this option and secure green financing for the Global South.

Its key recommendations include, but are not limited to: closing the credit-rating gap for smaller and lower-income countries through partial guarantees by multilateral development banks; encouraging sovereign wealth institutions in mainland China and Hong Kong to boost liquidity and signal support through strategic purchases; and harmonising green standards through tools like the Multi-Jurisdiction Common Ground Taxonomy to curb greenwashing and attract global investors.

The task now is to rally global financial forces behind these platforms, transforming them into accessible highways for climate-oriented capital. Not only would this ease the climate-financing crunch. More importantly, it would give countries across the Global South the agency and optionality to shape their own energy futures.

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Ma Jun is President of the Beijing-based Institute of Finance and Sustainability and a former co-chair of the G20 Sustainable Finance Working Group. Sean Kidney is CEO of the Climate Bonds Initiative.

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© Project Syndicate 2025

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