China pledges new bond products to boost foreign investment

CHINA has vowed to push ahead with opening its bond market to foreign investors, with a senior central bank official saying it was crucial for the development of the nation’s financial markets.

“We have some thoughts about how to further open up the bond market,” People’s Bank of China Deputy Governor Pan Gongsheng said at a forum yesterday.

“We’re researching and plan to issue new index products such as bond ETFs to facilitate foreign investors, and will improve connectivity between central custodian institutions.”

Foreign investors’ holdings in China’s total bond market increased to 2.3pc by the end of 2018, Mr Pan said. It was 1.6pc at the end of 2017.

The share held by foreign investors in the government bond market rose to 8.1pc by the end of last year, Mr Pan said, from about 6pc at the end of April 2018.

China has accelerated the opening of its financial market to foreign investors since late 2017 by lifting some curbs on the ownership of financial institutions.

In a recent move, it doubled the limit of the Qualified Foreign Institutional Investor programme, a main foreign investment channel into China, to $300bn (€263bn).

Chinese sovereign bonds rallied in December, capping a strong year of gains.

Mr Pan praised the development of the local bond market, noting that it had high yields and a relatively low default rate of 0.79pc at the end of 2018.

In addition to allowing more investors to access the local bond market, China also wants to encourage more overseas issuers to tap its debt markets to raise money.

By the end of 2018, almost 200 billion yuan (€29.5bn) had been raised selling so-called Panda bonds, yuan-denominated debt sold by overseas issuers.

Mr Pan said China welcomes overseas entities that want to raise money locally and the proceeds can be used freely inside and outside the country.