China Touts Further Opening of Domestic Bond Market to Foreign Investors

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China’s top financial authorities are touting the further opening up the domestic bond market to foreign institutional investors, with the release of a new directive which grants them greater discretion in their choice of exchanges and custodial service providers.

On 27 May the People’s Bank of China (PBOC), the China Securities Regulatory Commission (CSRC) and the State Administration of Foreign Exchange (SAFE) jointly issued the “Arrangements in Relation to Further Increasing the Convenience of Offshore Institutional Investors Investing in the Chinese Bond Market” (关于进一步便利境外机构投资者投资中国债券市场有关事宜).

China’s financial regulators said that the Arrangements are for the purpose of “coordinating simultaneous driving of the external opening of the interbank and exchange bond markets.”

The Arrangements will seek to “strengthen the systemic, overall, coordinated external opening of China’s bond markets,” as well as “further increase the convenience of offshore institutional investors investing in the Chinese bond market, and unify cross-border management of funds.”

Key measures highlighted by Chinese regulators include:

  1. Supporting offshore institutional investors to invest in the exchange bond market either directly or via bond connect initiatives, and making independent selection of exchanges.
  2. Upholding across-the-board data and information gathering, and exploring the establishment of accommodative system arrangements for multi-polar custody. Foreign investment banks on the interbank bond market will be permitted to independently select their own bond registration and settlement organisations or custody banks based upon their specific needs.

China’s bond market has been the world’s second largest since 2016, and as of the end of April 2022 the Chinese bond market balance was 138.2 trillion yuan.

A total of 1035 offshore institutional investors are currently participating in the Chinese bond market, and collectively hold 3.9 trillion yuan in bonds, for an increase of 225% since the end of 2017.