13 Sept 2018
Investment Facilities of Mainland Bond Market Continue to Improve and Degree of Openness Is Expected to Deepen
Since the launch of Bond Connect, channels for foreign investors to enter the Mainland bond market have been further broadened. Currently, foreign investors can enter the Mainland bond market through QFII, RQFII, CIBM and Bond Connect. Improvement of investment facilities has prompted international investors to keep increasing their holdings of RMB bonds, and the Mainland bond market has become an important market for foreign central banks and institutional investors to allocate their assets. In March, Bloomberg announced the addition of Chinese RMB-denominated government and policy bank securities to the Bloomberg Barclays Global Aggregate Index starting next April. Increasing level of internationalization of Mainland bond market has attracted more overseas investors.
To meet the demand of overseas institutions for RMB bonds, the Chinese government has continuously reformed the bond market since the beginning of this year, including opening the domestic credit rating business to foreign ownership, loosening the relevant provisions of QFII and RQFII, clarifying the tax rules for investing in RMB bonds, and fully implementing a delivery versus payment (DVP) settlement system for transactions through Bond Connect. These supporting policies remove some of the trading barriers and policy uncertainties in accessing the Mainland bond market and help enhance the attraction of the Chinese bond market for foreign investors, thus deepening the degree of openness of the Mainland bond market.
Allocation by overseas institutions in China's bond market
1. Proportion of foreign investors in the Mainland bond market sets record high
In recent years, the Mainland bond market has developed rapidly and has achieved positive results in terms of breadth and depth. As of July 2018, current outstanding balance of the Mainland bond market registers 80.5 trillion yuan, the third largest bond market in the world. Nowadays, foreign investors can carry out cash bonds in the exchange market and conduct various financial transactions such as cash bonds, bond lending, bond forwards, interest rate swaps (IRS), and forward interest rate agreements in the inter-bank bond market.
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