China to issue sovereign green bonds in Canada

China’s Ministry of Finance will issue a Chinese yuan-denominated sovereign green bond in Canada this week, but bond market participants say its modest size and a limited investor base may cap its broader market significance.

“The symbolism outweighs the substance,” Zhang Xuhua, deputy general manager of fixed income at Yunnan International Trust Co., Ltd. in Shanghai told The Globe and Mail. “The timing itself conveys a message that goes beyond finance.”

The issue, which will include three- and five-year tranches, will be the second of its kind after an April 2025 issue in London, as China seeks to expand the international use of its currency. It comes amid warming relations between Ottawa and Beijing.

In a statement on its website Thursday, the ministry said that it had received approval from the State Council, China’s cabinet, to issue up to 4-billion yuan ($843-million) worth of sovereign green bonds in the week of Nov. 9. Green bond proceeds are intended for environmentally beneficial projects.

The statement followed meetings between Chinese and Canadian officials in Beijing last week that produced significant tariff reductions from China, as well as an agreement by Canada to extend refunds on Canadian tariffs for a number of types of Chinese steel that Canada doesn’t produce domestically. Those refunds, which began in 2025, will be extended until the end of 2028.

“Against this backdrop, the issuance of sovereign bonds signals warming bilateral relations underpinned by financial co-operation,” Mr. Zhang said.

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The sovereign issuance also reflects a growing global market for yuan-denominated bonds.

Yuan bonds issued outside of mainland China by Chinese and international issuers are known as dim sum bonds, named after the traditional Hong Kong cuisine. British Columbia issued 2.5-billion yuan worth of dim sum bonds in Hong Kong in 2013, becoming the first non-Chinese government entity to do so.

While far smaller than China’s US$29-trillion onshore bond market, the world’s second-largest, global dim sum issuance more than tripled between 2020 and 2025, according to market operator Hong Kong Exchanges and Clearing Ltd. Year-to-date issuance as of late September rose 13.8 per cent from the previous year to 266.9-billion yuan.

Panda bonds, yuan-denominated debt instruments issued by overseas entities in China’s onshore market, have also seen strong growth. Issuance of panda bonds jumped 68 per cent in the first half of this year from the same period a year earlier to 160-billion yuan, according to S&P Global China Ratings.

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China has promoted the issuance of yuan-denominated instruments as part of efforts to encourage greater use of its currency, also known as the renminbi, in global trade, financing and reserves.

Ricco Zhang, senior director for Asia Pacific at the International Capital Market Association (ICMA) in Hong Kong, said the inaugural 6-billion yuan issue of sovereign green bonds in London provided a “useful precedent” for understanding the Canadian deal.

“Canada similarly already has RMB clearing and liquidity infrastructure, so the issuance can be seen as an effort to activate an existing offshore RMB centre and broaden the geographical investor base, rather than simply raising funding that could not be obtained elsewhere,” he said in an e-mailed response to questions, using an abbreviation for renminbi.

This week’s Canadian issue is small, but the London transaction showed a modest sovereign issue can still play an important role for benchmarking and market development, he said.

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All the same, though the London deal was oversubscribed and attracted a range of different investors, they were mostly based in the Asia-Pacific region. The ICMA’s Mr. Zhang said there is an “opportunity to broaden participation among Canadian and other North American institutions over time.”

Some experts say enthusiasm for the deal may be hampered by the relatively weak appeal of Chinese bonds, which currently offer yields far lower than those of other major markets.

The yield on five-year Chinese government bonds currently stands around 1.36 per cent, compared with 3.37 per cent for its Canadian equivalent.

“For investors who hedge into Canadian dollars to avoid currency risk, I don’t see a clear yield advantage in this green bond over a Canadian government bond of the same maturity,” said Hadiza Djataou, portfolio manager and head of fixed income macro at Mackenzie Investments in Toronto.

At the same time, the new issue could attract buying from funds following major international bond indexes, if they are added to an index they track, she said.