Dim Sum Bonds, Panda Bonds, and Dispute Resolution

Image by 张婷芝 Cathy Zhang from Pixabay

China’s push to internationalize the renminbi (RMB, or yuan) since 2008 has led to the growing share of RMB-denominated bonds in the international bond market. So-called “panda bonds” and “dim sum bonds” are variants of RMB-denominated bonds. Panda bonds are onshore RMB debt issued in China by entities domiciled outside mainland China. Overseas issuers use the panda bond market to raise capital, with domestic investors being the main buyers. Dim sum bonds are RMB-denominated bonds issued and settled outside mainland China, mainly in Hong Kong. RMB-denominated bonds have become increasingly popular: dim sum issuance tripled over the past three years, totaling RMB 475 billion ($66.3 billion) by August 2025. Panda bond issuance has also seen a surge since 2023, hitting a record high of RMB 195 billion ($27 billion) in 2024.

Foreign governments have also tapped into the growing RMB bond market. Most recently, Russia issued RMB 20 billion ($2.8 billion) of government bonds. Hungary issued a RMB 5 billion bond in September, and the emirate of Sharjah issued RMB 2 billion in October. Kenya, Angola, and Sri Lanka have also made deals to refinance dollar loans from Chinese banks into RMB this year. Brazil, Pakistan, and Slovenia said earlier this year that they were also planning to issue RMB bonds.

This post examines the dispute resolution architecture in RMB-denominated sovereign bonds. Whenever there is a contract, there is the possibility of a contractual dispute. The dispute resolution clause in a bond prospectus or offering document specifies the choice of law and forum for a potential dispute. RMB-denominated sovereign bonds—particularly panda bonds—increasingly embed dispute resolution clauses that shy away from New York and London courts, and favor Chinese courts and arbitral centers.

The stipulation of Chinese arbitral centers is confined to panda bonds that are sold to China-based investors. Therefore, RMB-denominated sovereign bonds do not yet pose a systemic challenge to the dominance of New York and London in sovereign debt litigation. Nevertheless, they represent an effort to absorb sovereign debt disputes into a domestic legal order (through the dual design of governing law and choice of forum clauses) and internalize capital markets enforcement.

The Rise of RMB Bonds

Several factors have contributed to the increasing appeal of RMB-denominated bonds. First, China has implemented regulatory reforms that streamline issuance processes, clarify the use of proceeds, and facilitate foreign exchange hedging. Second, compared to USD bonds, RMB-denominated bonds often offer lower financing costs. Since 2022, China’s ten-year government bond yield has consistently been lower than that of the United States, with the interest rate gap steadily widening. The People’s Bank of China (PBoC) has implemented interest rate cuts and reduced the reserve requirement ratio for banks. Entities seeking financing strategically choose RMB to capitalize on China’s low interest rates in order to lower borrowing costs and ease their debt burdens. Accessing China’s domestic investor base also allows for portfolio diversification. Third, rising geopolitical concerns have encouraged a “China for China” strategy, with Chinese companies increasingly shifting their financing activities to the domestic market. Fourth, the secondary market of RMB bonds is characterized by high liquidity, allowing investors to buy and sell the bonds relatively easily after the initial issuance.

In October 2014, the UK government issued the first non-Chinese sovereign offshore RMB bond. In April 2016, Hungary issued the first sovereign RMB bond in continental Europe. Kazakhstan’s development bank sold a RMB 2 billion offshore bond. Indonesia raised RMB 6 billion through its first-ever dim sum bond. As Beijing promotes the use of its currency in international trade and finance, it is seeking to gain global influence and reduce dependence on the dollar amid rising US-China tension. To defend against the United States’ attempt to weaponize the dollar, China has opened more channels for foreign investors to buy RMB-denominated bonds, and has focused on boosting RMB’s role in trade. A search on the financial market database, Cbonds, shows that non-Chinese sovereign issuers of RMB-denominated bonds include: Belarus, Canada, Egypt, Hungary, Indonesia, Mongolia, Philippines, Poland, Russia, and the United Kingdom. There are twenty-one RMB-denominated, non-Chinese sovereign bonds in total, including those already redeemed and those still outstanding.

Dispute Resolution in RMB Bond Issuances

While not all of the prospectuses and offering documents for the RMB-denominated sovereign bond transactions are publicly available, the available ones suggest that panda bonds tend to choose arbitral centers in China as the forum, while dim sum bonds opt for New York or English courts. This dichotomy is reasonable because panda bonds are issued within domestic Chinese markets, and Chinese investors are more familiar with and proximate to Chinese fora. Dispute resolution for panda bonds is based on the “Chinese model,” whereby Chinese law is the governing law for the bonds, and arbitration in China is the mechanism for dispute resolution. The Chinese International Economic and Trade Arbitration Commission, or CIETAC, is usually chosen as the arbitral tribunal.

China’s new sovereign immunity law marks an important development in dispute settlement for panda bonds. Previously, China followed the absolute immunity doctrine, pursuant to which foreign states were immune from lawsuits in Chinese courts, and their assets immune from execution. In January 2024, the Foreign State Immunity Law (FSIL) came into effect in China, representing a change in China’s foreign state immunity doctrine from absolute immunity to restrictive immunity, which had already been adopted by many jurisdictions. The FSIL allows foreign countries to be sued in Chinese courts in relation to their commercial activities, permitting parties to enforce judgments against foreign states’ commercial assets. That is to say, foreign states are no longer immune from suit in arbitration-related court proceedings that arise out of commercial activities or investment disputes. China’s adoption of the restrictive immunity doctrine has broadened the scope of actions and proceedings against foreign states with respect to their commercial transactions. With the rising popularity of RMB bonds, the FSIL grants Chinese bondholders more leverage to litigate against other sovereign issuers.

Egypt’s 2023 RMB bonds, guaranteed by the Asian Infrastructure Investment Bank and African Development Bank, are governed by Chinese law and provide that disputes “arising from or in connection with the Bonds and/or Guarantee shall be submitted to CIETAC for arbitration to be conducted with the CIETAC Arbitration Rules.” This provision deviates from the standardized choice of forum clauses choosing New York or London courts, or arbitration at the London Court of International Arbitration (LCIA) or the International Chamber of Commerce (ICC). Poland, Hungary, and the Philippines have all incorporated arbitration clauses stipulating CIETAC in their offering circulars for panda bonds. In contrast, Indonesia’s 2024 bonds (CNY 3.5 billion 2.50% bonds due 2030 and CNY 2.5 billion 2.90% bonds due 2035) are governed by New York law, with the choice of forum clause choosing New York courts. Mongolia’s 2015 RMB bonds, issued under the USD 5 billion Global Medium Term Note Program, are governed by New York law, with the choice of forum clause choosing the Singapore International Arbitration Centre (SIAC), which still retains common-law litigation frameworks.

In the 2024 panda bond manual published by China’s National Association of Financial Markets Institutional Investors (NAFMII), there is a guideline that where arbitration is the dispute resolution mechanism, “it shall be clearly stated that disputes will be submitted to an arbitral tribunal within the People’s Republic of China; where the enterprise chooses litigation as the dispute resolution mechanism, the enterprise shall clearly state that the disputes will be submitted to a court within the People’s Republic of China.” An IMF publication also notes that when a dispute arises in a panda bond transaction, it is arbitrated in China by default, where Chinese arbitration rules and related judicial procedures apply. Similarly, a 2019 Baker McKenzie report suggests that based on panda bond issuance precedents, in practice Chinese regulators usually require that the offering and transaction documents for panda bond issuances be governed by Chinese law, and the parties usually agree to submit relevant disputes to the CIETAC.

A Threat to New York and London Dominance in Sovereign Bond Litigation?

Arbitration at the CIETAC differs from arbitration at the LCIA (commonly chosen in English law governed bonds allowing for arbitration) in several regards: the CIETAC requires greater institutional oversight regarding draft awards, whereas the LCIA allows for greater party autonomy with less direct intervention. The CIETAC uses ad valorem fees and requires full payment upfront, while the LCIA uses time-based or hourly rates. At the CIETAC, arbitration costs are in principle borne by the unsuccessful party, although the tribunal has discretion to allocate costs. Summary procedure is mandatory at the CIETAC if the amount in dispute is below RMB 5,000,000, and summary procedure is available in limited circumstances even above this amount—a feature that could meaningfully affect smaller bondholder claims. In addition, the CIETAC Commission rather than individual arbitral tribunals has the power to determine the existence and validity of arbitration agreements. In contrast, the LCIA rules grant sole power to the arbitral tribunal to determine the existence or validity of an arbitration agreement. The CIETAC imposes a time limit (six month) for rendering awards, and CIETAC tribunals may render interim awards on any issues before the final award.

Should practitioners in New York and London be concerned about panda bonds selecting the CIETAC as the forum for dispute settlement? Probably no. Dim sum bonds still predominantly align with the standardized practice of choosing New York or London courts. For panda bonds, CIETAC rules do not differ from other arbitral bodies’ rules in many procedural respects that would be salient to most commercial parties, and the CIETAC is also gradually taking on a more transnational character. The competitive pressures among arbitral bodies will also lead to institutional isomorphism, rendering the arbitral bodies more alike in terms of procedural rules. Indeed, the CIETAC 2024 Arbitration Rules have seen a continued trend of alignment with international arbitration standards, including the ability for parties to seek conservatory measures from non-Chinese courts and prior to the service of the Notice of Arbitration. There are also virtues for making dispute resolution more accessible to China-based investors. The remaining variable is the extent to which CIETAC proceedings might be politicized—particularly in disputes involving foreign sovereigns during periods of heightened geopolitical tension.

Conclusion

To date, we have only seen panda bonds opting for the CIETAC, and CIETAC-administered arbitration has not emerged as a functional substitute for the kind of creditor-driven litigation that has shaped sovereign debt jurisprudence in New York and London. The bottom line, therefore, is that Chinese arbitral bodies such as the CIETAC are unlikely to pose a systemic challenge to the market share of New York and London courts and arbitral bodies anytime soon.