China to lower barriers for foreign investors to access $15.4T bond market

September 3, 2020.

Financial regulators in China rolled out new draft rules to make it easier for foreign financial institutions to participate in its $15.4 trillion bond market, as the country continues to open itself up to global investors.

The People’s Bank of China said Wednesday that it had partnered with the country’s securities and foreign exchange regulators to roll out new rules for foreign players entering the Chinese interbank bond market, which hosts debt issued by China’s largest state-run firms in addition to short- and medium-term corporate notes.

By letting a wider range of institutions participate directly or indirectly in bond trading, the agencies said that further opening the market would strengthen China’s financial system. China boasts the world’s second-largest bond market after the U.S. market.

The proposed rules are aimed at relaxing the country’s tight bond market regulations, which to this point have limited foreign access mostly to approved central banks, sovereign wealth funds and international organizations. Under the new draft measures, overseas commercial lenders and fund managers will be able to buy and sell yuan-denominated bonds after receiving permission from regulators to do so.

Foreign institutions will be able to trade Chinese bonds through intermediaries such as trustee agencies in the interbank market. The intermediaries are required to report the outstanding value of the bonds held by foreign investors to the PBC, according to the draft rules.

The proposed regulations are open for public comments through Oct. 1, according to the regulators.

Pending formal adoption by the Chinese government, the new bond rules mark another step down the country’s road to liberalizing its bond and broader financial markets. In July, the PBC and China’s securities watchdog reportedly linked bond trading on the country’s interbank and exchange platforms, a step that was seen as likely to attract more foreign investors.

Even as tensions with the U.S. and other overseas countries continue to boil, top officials at the PBC said they would continue opening their markets to overseas capital.

“No matter how the international situation changes, the most important thing is to do our own thing and unswervingly deepen the reform of the financial industry and open up to the outside world,” PBC Governor Yi Gang said Aug. 10.

--Additional reporting by Theo Wayt