China making progress to open bond market to foreign investors

[optquant]

China’s top financial regulators unveiled new rules to make it easier for foreign investors to access the country’s $15.4 trillion bond market in a further effort to open up and bolster domestic financial markets.

Regulators will simplify application procedures for foreign bond investors and unify rules governing various investment channels, according to a set of draft regulations issued Wednesday by China's central bank, the foreign exchange regulator and the securities watchdog.

The rules are aimed at "making it easier for overseas institutional investors to allocate assets into yuan-denominated bonds," the People's Bank of China said on its website.

for more info about China Bond Market please check https://www.fangquant.com/t/944#reply0

 

[maxinger]

Honestly, it is rather difficult to get relevant information.
It seems like information is all over the place or hidden somewhere.


We just need this information in posting #1 :

- Which China Exchange is offering bond products to foreigners
- Which particular bond products
- Which foreign brokers offer these products

 

[optquant]

China PBOC published draft rules on Wednesday aimed at facilitating foreign access to the world's second biggest bond market, potentially fuelling further strength in the yuan currency.

Application procedures for foreign bond investors will be simplified and rules for various investment channels unified, China's central bank, the foreign exchange regulator and the securities watchdog said in a joint statement.

The changes come ahead of a Sept. 24 decision by global index publisher FTSE Russell on whether to include Chinese government bonds in its benchmark bond index.

The rules are aimed at "making it easier for overseas institutional investors to allocate assets into yuan-denominated bonds," the People's Bank of China said on its website.


Beijing has been accelerating the opening-up of its capital markets amid rising tensions with Washington in areas including trade, technology and capital markets.

Lured by China's attractive yields and an economy recovering from the coronavirus-induced slump, foreign investors have been stepping up purchases of Chinese bonds over the past months.

"This is a trickle which may become a stampede over the coming months and years," Peter Kinsella, Global Head of Forex Strategy at UBP wrote on Wednesday ahead of the announcement, predicting increased appreciation pressure on the yuan.

According to the draft rules, qualified foreign bond investors and their custodians no longer need to get Chinese regulatory approval for their individual product that invests in China.


And to unify rules under various bond investment channels in China, foreign investors already in China's interbank bond market can access the exchange bond market directly or via the Bond Connect scheme.

Rules are also unified for foreign bond investors in areas including money payment, foreign exchange and forex risk management. Foreign institutions may trade bond derivatives and bond exchange-traded funds (ETFs) in China in Shanghai and Shengzhen stock exchanges and China Financial Futures Exchange in Shanghai .

Even before the draft rules were published, analysts widely expected FTSE Russell to agree to include Chinese bonds in its World Government Bond Index (WGBI) during its annual review later this month.

Standard Chartered predicted an 80% probability that China will be included. Foreign inflows into China's bond market will reach 800 billion to 1 trillion yuan this year, rising further to 1-1.2 trillion yuan in 2021, the bank forecast.

for more info about bond market accessing can contact https://www.linkedin.com/in/fangfang-wu-a32973b5/

 

[bone]

Why would a foreigner buy a Sovereign Bond in a Country where the currency has a history of being unilaterally devalued and pegged?

Imagine being a pension fund manager in Canada and you wake up to find out that the People’s Bank of China has just devalued the worth of that 10 year paper you’re holding by 25%.

When China allows its currency to float on World markets, only then will foreign institutional investors participate to the extent they do with EU and US debt.

 

[thecoder]

Why would a foreigner buy a Sovereign Bond in a Country where the currency has a history of being unilaterally devalued and pegged?

Imagine being a pension fund manager in Canada and you wake up to find out that the People’s Bank of China has just devalued the worth of that 10 year paper you’re holding by 25%.

When China allows its currency to float on World markets, only then will foreign institutional investors participate to the extent they do with EU and US debt.

My opinion on this is mixed: a free floating currency opens the door for foreign predators to manipulate and even crush the whole economy of the country via that very country's small/weak currency, by manipulating that currency with the funds of a stronger nation (ie. USD), especially of small and/or developing and poor countries.

IMO every country needs a very stable currency for a sustainable & healthy development, therefore the currency of a country should be pegged to a multiple of other hard currencies plus gold to achieve that stability.

You have to see the situation from the point of the "victim" countries, not always from "the above".

And I think currency trading should be forbidden, as it's unethical.

 

[bone]

No institutional investor outside of China would risk the People’s Bank of China unilateral devaluation on such a low yielding instrument. They have a long history of it - as recent as 2019, and you’re just begging to get your throat cut. If you buy something that yields 2 percent and the PBC just devalued it by 10 percent you’ve just destroyed your pension or insurance fund investment management career. You’re done - because you’ve ignored history.

China does have 3 Trillion in US Dollar denominated debt, and that would certainly be of interest to foreign institutional investors.

My opinion on this is mixed: a free floating currency opens the door for foreign predators to manipulate and even crush the whole economy of the country via that very country's small/weak currency, by manipulating that currency with the funds of a stronger nation (ie. USD), especially of small and/or developing and poor countries.

IMO every country needs a very stable currency for a sustainable & healthy development, therefore the currency of a country should be pegged to a multiple of other hard currencies plus gold to achieve that stability.

You have to see the situation from the point of the "victim" countries, not always from "the above".

And I think currency trading should be forbidden, as it's unethical.

 

[thecoder]

@bone, can you back your claims using historical data, ie. charts etc? I guess not.

 

[bone]

@bone, can you back your claims using historical data, ie. charts etc? I guess not.

Two most recent examples are August 2015 (3%, PBC unilateral) and August 2019 (PBC, 7 Yuan Peg).

If you know how to use Google you can find more severe examples earlier - some as high as 50%.

 

[thecoder]

Two most recent examples are August 2015 (3%, PBC unilateral) and August 2019 (PBC, 7 Yuan Peg).

Yes, I see, indeed, and confirm your objection and observation.
Normally, ie. mathematically seen, there should be no necessity at all to do such manipulations,
then it would be ideal for all countries pegging their currency to multiple other hard currencies and gold to protect it from predators (ie. from strong countries). I mean, ideally it should be like that, but of course w/o doing such, admittedly, despicable dirty manipulations or "corrections".

 

[bone]

In your last few posts you refer to strong countries “preying” on weak countries when discussing currency controls or lack of controls. Which one is China?

Yes, I see, indeed, and confirm your objection and observation.
Normally, ie. mathematically seen, there should be no necessity at all to do such manipulations,
then it would be ideal for all countries pegging their currency to multiple other hard currencies and gold to protect it from predators (ie. from strong countries). I mean, ideally it should be like that, but of course w/o doing such, admittedly, despicable dirty manipulations or "corrections".