China to Integrate Interbank and Exchange Bond Markets


Beijing has unveiled plans to unify China’s interbank bond market and exchange bond market.

The People’s Bank of China (PBOC) and the China Securities Regulatory Commission (CSRC) recently gave their approval to “undertaking interlinked and interconnected cooperation between the relevant infrastructure institutions of the interbank bond market and exchange bond market,” according to a PBOC report from 21 July.

According to the report the move “marks a further acceleration in the interlinkage and interconnection schedule” for China’s interbank and exchange bond markets.

“Interlinkage and interconnection cooperation” (互联互通合作) refers specifically to “arrangements for qualified investors on the interbank bond market and exchange bond market to trade in bonds circulating on both exchanges by means of the integration of the infrastructure institutions of both markets.”

The bond registration, custody and clearing institutions for both markets will in future be able to jointly provide services to issuers and investors.

China’s bond market has long been divided into an interbank market and exchange market, with the interbank market far exceeding the exchange market in terms of both custody and transaction scale, due to it being the main bond market for institutional investors.

In April 2020 Beijing issued the “Opinions Concerning Establishing Better Mechanisms for the Market-based Allocation of Factors of Productions” (关于构建更加完善的要素市场化配置体制机制的意见) which called for “steadily expanding the scale of the bond market, enriching bond market products, and advancing interconnection and linkage of the bond markets.”

Lu Zhengwei (鲁政委), chief economist at Industrial Bank Co., said that the integration of the two markets will allow qualified investors on the interbank bond market and the exchange bond market to trade bonds on either market, as well as some banks to participate in exchange spot contract transactions.

According to Lu the integration of the markets will help resolve a number of problems including, including making life more convenient for investors by removing the need for multiple accounts, and improving monetary policy transmission channels by diminishing disparities in the investor structure and liquidity of the two markets.

Data re­leased by the Peo­ple’s Bank of China (PBOC) on 3 July in­di­cates that Chi­na’s bond mar­ket bal­ance cur­rently stands at 108 tril­lion yuan (ap­prox. USD$15.28 tril­lion), making it the world’s second largest.

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