The African Development Bank recently permitted a cash-strapped Egypt to become the first African country to issue bonds in Chinese currency using Beijing’s Panda bonds mechanism.
The recent deal presents mutual benefits for Egypt and China at the expense of the United States, Cairo’s traditional ally. The agreement constitutes the latest sign of China increasingly filling the political vacuum created by Washington’s gradual retreat from the combustible Middle East and North Africa regions.
Chinese Panda bonds offer fund diversification to Egypt
The China Panda bonds agreement will enable Egypt to raise the equivalent of $500 million in the vast Chinese Panda bond market, which is worth an estimated $21 trillion in 2022.
Egypt is one of the largest economies in the Middle East and Africa, with an annual Gross Domestic Product of around $400 billion. However, with a population of more than 110 million citizens, Egypt is a poor nation and unable to create a sufficient amount of employment opportunities for its rapidly growing young population.
In 2022, Egypt’s GDP per capita was a mere $4,500, which is less than 10% of the United Arab Emirates’ GDP per capita, which reached close to $50,000 in 2022.
Abdourahmane Diaw, country manager for Egypt at the African Development Bank, believes Egypt will benefit greatly from the Chinese Panda bonds.
“The panda bond issuance and related PCG will help Egypt diversify its funding sources, take advantage of better market conditions and develop long-term relationships with local Chinese and international institutional investors in the Chinese panda bond market,” Diaw explained.
Economist and Risk Analyst Ali Metwally, who specializes in the Middle East and North Africa, believes the Chinese Panda bond deal will help Cairo to diversify its funding portfolio.
“The panda bond deal holds various benefits in terms of diversifying funding sources, accessing a large investor base, improving investor confidence, enhancing bilateral relations with China and improving economic visibility and recognition in the East,” Metwally told the Al-Monitor news outlet.
On a strategic level, the Chinese Panda bonds allow Egypt to reduce its currently high financial dependence on American and West European investors.
During much of the Cold War, Egypt was a Soviet client state. However, following the historic Egyptian-Israeli peace agreement in 1979, Cairo gradually emerged as an important American ally in the Middle East region.
However, Washington’s growing criticism of Egypt’s human rights abuses have allegedly pushed Cairo toward forming alliances with China.
China’s Panda Bonds expand Beijing’s global influence
At the same time, the Panda bonds mechanism enables China to extend its growing influence throughout the Middle East and other developing economies at the expense of the United States and the West. Egypt appears to be only the latest brick in China’s growing investments across the wider Middle East region.
In early 2022, China and Iran reportedly signed a strategic agreement where Beijing committed to invest some $400 billion into the struggling Iranian economy over the next 25 years.
Then, in December 2022, China and Saudi Arabia signed a strategic partnership with Chinese President Xi Jinping, reportedly worth an estimated $30 billion. During his visit to Saudi Arabia, the Chinese leader presented the strategic partnership as “a new era” in Chinese-Arab ties.
Chinese Foreign Ministry spokeswoman Mao Ning stressed the historic importance of the Chinese president’s visit to Saudi Arabia.
“This will be the largest and highest-level diplomatic event between China and the Arab world since the founding of the People’s Republic of China,” stated Ning.
Saudi Arabia, like Egypt, has traditionally been an ally of the United States but has gradually been drifting into China’s orbit, reportedly due to the Biden administration’s tense diplomatic relations with the Saudis.