Sino File | Communist China’s becoming a key player in global capitalism
The launch of Bond Connect is the latest in a series of steps that open up China’s markets to overseas investors
Now, all of China’s main financial commodities – currency, stocks and bonds – can be included in an international investor’s portfolio as Beijing further opens up its financial markets.
The Chinese economy will benefit from allowing international investors to access its domestic debt market, which will help finance the sustainable growth of the world’s second-largest economy. The increased trading volumes will tend to lower the cost of capital.
The opening up of the Chinese onshore bond market to foreign investors will help equip it for inclusion in major global bond indices. The most optimistic calculations suggest the world’s third-largest bond market, after the US and Japan, could eventually represent 18 per cent of the major world bond indices. Goldman Sachs Group estimated that if Chinese bonds were included in three key benchmarks, it would translate into inflows equalling about US$250 billion.
MSCI inclusion points China’s stock market in right direction
The foreign fund will not only boost China’s corporate financing, but also help offset its foreign-exchange outflows, which in 2016 saw a monthly drop of US$10 billion to US$20 billion.