China opens up $10 tril­lion bond mar­ket

Bei­jing try­ing to in­ter­na­tion­al­ize the yuan

Kuwait Times - - BUSINESS -

SHANG­HAI: China yes­ter­day widened ac­cess to its $10 tril­lion bond mar­ket, which an­a­lysts said will boost Bei­jing’s drive to in­ter­na­tion­al­ize the yuan and more deeply in­te­grate its mar­kets with the world fi­nan­cial sys­tem. The new win­dow for for­eign in­vestors was opened via Hong Kong, where “qual­i­fied in­vestors” such as cen­tral banks, sovereign wealth funds and ma­jor fi­nan­cial in­sti­tu­tions are now al­lowed to buy Chi­nese bonds-the world’s third-largest mar­ket af­ter the United States and Ja­pan. Qual­i­fied in­vestors in­clude cen­tral banks, sovereign wealth funds, and other ma­jor fi­nan­cial in­sti­tu­tions, ac­cord­ing to the Peo­ple’s Bank of China (PBoC) and the Hong Kong Mon­e­tary Author­ity, who jointly an­nounced the move on Sun­day.

Trad­ing got off to a tepid start, how­ever, with an­a­lysts say­ing ques­tions about the yuan’s sta­bil­ity and fears over mount­ing Chi­nese debt levels will keep for­eign en­thu­si­asm in check. The 10-year gov­ern­ment debt yield had risen only slightly by late af­ter­noon to 3.5732 per­cent, or 0.0076 points, ac­cord­ing to Bloomberg. Bond yields rise in­versely to their prices. The Peo­ple’s Bank of China (PBoC) and the Hong Kong Mon­e­tary Author­ity jointly an­nounced the step on Sun­day amid week­end cel­e­bra­tions for the 20th an­niver­sary of Bri­tain’s han­dover of Hong Kong to Bei­jing in 1997.

The PBoC said in a state­ment yes­ter­day that the new plat­form would “pro­mote Hong Kong’s long-term pros­per­ity and sta­bil­ity, and pro­vide a more con­ve­nient in­vest­ment chan­nel for over­seas in­vestors”. “It will also steadily push for­ward the open­ing up of China’s fi­nan­cial mar­ket,” it said. The link-up was launched in Hong Kong by the city’s new chief ex­ec­u­tive Car­rie Lam, who hailed it as “an­other new chap­ter in the devel­op­ment of mu­tual cap­i­tal mar­kets ac­cess be­tween the main­land and Hong Kong”.

For­eign in­vestors al­ready have ways to ac­cess Chi­nese bonds but cur­rently hold less than 1.5 per­cent of any­thing is­sued in China, ac­cord­ing to es­ti­mates by Bloomberg. China has been work­ing to as­sim­i­late more with global mar­kets, which al­lows ac­cess to in­creased for­eign in­vest­ment at a time of slow­ing do­mes­tic eco­nomic growth and helps in­ter­na­tion­alise its cur­rency, which can in­crease a coun­try’s global mon­e­tary clout.

Open­ing up

The new plat­form mir­rors pre­vi­ously es­tab­lished link-ups be­tween the share mar­kets of Hong Kong and main­land China that now al­low for­eign and Chi­nese in­vestors to buy stocks in the each other’s mar­kets. The con­nect scheme cur­rently only al­lows for­eign in­vestors to buy Chi­nese bonds-in­clud­ing gov­ern­ment, cor­po­rate and cen­tral bank debt-but is ex­pected to be­come two-way even­tu­ally.

An­a­lysts said the new open­ing was not ex­pected to prompt a rush of for­eign in­vest­ment. But it was hailed by some as a step to­ward Chi­nese debt be­ing in­cluded in key global bond in­dices, which will en­cour­age fi­nan­cial in­sti­tu­tions to raise their in­vest­ments in China bonds. “The en­hanced ease of in­vest­ment un­der Bond Con­nect will at­tract more over­seas funds, cre­at­ing a more di­ver­si­fied in­vestor base and fur­ther en­hanc­ing the mar­ket’s size and depth,” said He­len Wong, Greater China chief ex­ec­u­tive for bank­ing gi­ant HSBC said. “This will help pave the way for China bonds to be in­cluded in ma­jor global bond in­dices in the fu­ture.”

Rat­ings agency Moody’s called the move a “mile­stone” in yuan in­ter­na­tion­al­iza­tion. China has for years faced for­eign com­plaints about re­stricted ac­cess to its mar­kets, but has re­cently made a series of lib­er­al­iza­tion pledges. Last month, lead­ing in­dex com­piler MSCI said it would in­clude Chi­nese shares in its global emerg­ing-mar­ket in­dices, cit­ing loos­en­ing re­stric­tions on for­eign own­er­ship of Chi­nese stocks. Af­ter years of run­away growth, China is grap­pling with slow­ing eco­nomic ex­pan­sion, and has moved to stanch mas­sive cap­i­tal flight by Chi­nese funds seek­ing bet­ter re­turns over­seas while try­ing to lure more for­eign in­vest­ment. —AFP

HONG KONG: Hong Kong’s new Chief Ex­ec­u­tive Car­rie Lam speaks dur­ing the Bond Con­nect launch­ing cer­e­mony in Hong Kong. —AP

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