PBOC Seeks to Drive Participation of Foreign Institutional Investors in Chinese Bond Market

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The Chinese central bank has led the issuance of new draft regulations on investment by foreign institutional investors in China’s bond market.

The People’s Bank of China (PBOC) and the State Administration of Foreign Exchange (SAFE) have just issued the draft version of the “Funds Regulatory Provisions for Offshore Institutional Investors Investing in the Chinese Bond Market” (境外机构投资者投资中国债券市场资金管理规定(征求意见稿)), for the solicitation of opinions from the public.

PBOC said that the new Provisions are for the purpose of “unifying regulatory provisions for bond market funds, and further facilitating investment in the Chinese bond market by foreign institutional investors.”

The Provisions cancel the restriction that foreign institutional investors must handle spot foreign exchange settlement and sale via settlement agents, instead allowing other domestic financial institutions to handle these procedures on their behalf as long as they are qualified for such operations.

They also allow a given foreign institutional investor to swap funds between its qualified foreign institution investors (QFII) or renminbi QFII’s and its own directly invested funds.

Under the principle of basic allocation of domestic and foreign currencies, the Provisions cancel the “outbound remittance ratio restriction for single currencies (renminbi or foreign currency).”

The Provisions mandate unified regulation of the bank accounts, funds receipts and payments, exchange, forex risk hedging and statistical supervision of investment by foreign institutional investments in the Chinese bond market.

They also seek to integrate multiple diverse and scattered procedure documents and produce standardised versions of them under unified regulation, in order to raise the convenience of investment procedures.

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