China opens Yuan markets to Russian energy giants via panda bonds - Trade Treasury Payments

China has initiated steps to allow major Russian energy corporations to issue panda bonds in its domestic financial markets, marking the first such access since 2017, as reported by the FT. Panda bonds are Chinese renminbi-denominated bonds issued by non-Chinese companies in China’s domestic financial markets. They were first introduced in 2005 and are sold directly in mainland China’s onshore market, providing foreign issuers with access to China’s domestic capital market. It also promotes internationalisation of the Chinese currency.

This development comes as Gazprom and Rosatom, Russia’s gas and nuclear corporations, received top AAA ratings from Chinese credit agencies this year, setting the stage for potential debt issuance in China’s domestic markets. Gazprom received this rating on 5th September 2025, while Rosatom received it in April 2025.

Western sanctions drive financial realignment

Following the outset of the Russia-Ukraine conflict in February 2022, Russian energy companies have been cut off from Western capital markets, forcing them to seek alternative funding sources. Additionally, the yuan has already become the most traded foreign currency in Russia’s domestic market, replacing both the dollar and euro in many transactions. 

While Russian companies have issued panda bonds, also known as yuan-denominated bonds in their own domestic market, China’s financial system offers a much larger pool of capital. However, Russian companies have a limited history in China’s bond markets. Aluminium producer Rusal is the only precedent, having issued 1.5 billion yuan in panda bonds in 2017, well before the Ukraine conflict escalated further and changed Russia’s fate.

This news comes alongside the formal agreement on the “Power of Siberia 2” pipeline during Russian President Vladimir Putin’s four-day visit to China from 31st August to 3rd September 2025. This pipeline project will transport 50 billion cubic meters of gas annually from Western Siberia to northern China via Mongolia.

When combined with the existing Power of Siberia 1 pipeline and the Far Eastern route, Russia’s gas deliveries to China could reach almost 100 billion cubic meters yearly, approaching two-thirds of what Moscow previously sent to European markets in 2022.

In 2021, Russia supplied approximately 150 billion cubic meters of gas annually to Europe, but deliveries have since fallen to 52 billion cubic meters in 2024. This is a decrease in the Russian share of the total natural gas imports by the EU, from 45% to 19%. 

Additionally, Russian oil imports in the EU have also plummeted to 3% at present from 27% of the total EU oil imports in 2022, when the conflict of Russia-Ukraine broke out. 

Source: European Commission

The most severe impact is on the Russian coal sector, as all coal imports from Russia are banned by EU sanctions. The EU has also established plans to completely phase out Russian fossil fuels by 2028, making the Chinese market increasingly vital for Russian energy exports.

Regulatory challenges remain a concern

The Russian Finance Ministry has indicated a preference for yuan-denominated sovereign bonds to be issued in Russia rather than as panda bonds in China. The ministry plans to establish a direct link for mainland Chinese investors to Russia via a depository bridge, increasing yuan liquidity in the Russian market while maintaining more control over the issuance process.

During his China visit, Putin specifically advocated for joint financial infrastructure for countries of the Global South and suggested that Shanghai Cooperation Organisation members consider selling joint bonds, but the ultimate decision lies with the Chinese government. 

Additionally, despite receiving favourable credit ratings, Russian companies face significant obstacles before any actual bond issuance materialises. They must secure explicit approval from Chinese regulators, who must balance deepening financial ties with Moscow against risking secondary sanctions from Western governments.

Chinese banks and brokers, the primary buyers of panda bonds, would need to carefully assess the sanctions risk. This reality explains why initial bond issuance might be limited to just two or three companies, likely focusing on companies like Rosatom that remain relatively unsanctioned compared to other Russian energy firms.

Impact on global energy markets

The Russia-China energy and financial relationship carries substantial implications for the global market. For European economies, Russia’s eastward gas redirection means greater reliance on costlier liquefied natural gas imports, mainly from American suppliers. This cost difference worsens Europe’s existing energy price disadvantage compared to China, potentially weakening industrial competitiveness across European manufacturing sectors. 

For the American energy strategy, the situation carries mixed effects. While Europe has become America’s primary LNG destination, China’s reduced need for US liquefied gas following increased Russian pipeline supply could alter export projections. However, growing domestic American consumption driven by data centre construction may redirect some export capacity toward home markets anyway.

On the other hand, for China, the arrangement comes with advantages. Beijing secured favourable pricing terms for Russian gas, with estimates suggesting Russia’s Gazprom already earns 45-50% less per cubic meter from China than it previously received from European customers.

What does the future hold?

The opening of China’s bond markets to Russian energy companies is a moment in itself for a shift in the global energy market. This arrangement creates a new model for countries seeking to operate outside Western economic systems and challenge the decades-long dominance of dollar-based transactions and institutions.

The true test of this financial relationship will come when Chinese regulators must decide whether actual bond issuances proceed. It will reveal much about Beijing’s risk tolerance regarding secondary sanctions and its broader strategic calculations about the value of deeper economic ties with Russia relative to potential costs in Western relationships. Whatever the outlook, energy will speak.