Overseas investors’ holdings of Chinese bonds topped 1 trillion yuan for the first time in August

PUBLISHED : Wednesday, 05 September, 2018, 1:06pm
UPDATED : Wednesday, 05 September, 2018, 1:06pm

The value of Chinese government bonds held by offshore investors exceeded 1 trillion yuan (US$146.26 billion) for the first time in August as regulators moved to improve access to the world’s third-largest bond market.

Investors outside mainland China boosted their Chinese government bond positions by 53.9 billion yuan in July to 1.03 trillion yuan, according to Reuters’ calculations based on data from China Central Depository and Clearing Co (CCDC), the country’s primary bond clearing house.

August marked the 18th consecutive month of increases in offshore holdings, and brought the proportion of outstanding Chinese government bonds held by offshore institutions to a record-high 8.0 per cent.

The steady rise in global interest in Chinese bonds comes alongside easier access to its interbank bond market, and as regulators have instituted tax incentives for foreign investors.

China’s cabinet said in late August that foreign investors would be exempt from enterprise or value added taxes on interest income earned in the domestic bond market for three years.

Reuters reported on August 24 that China had implemented real-time delivery-versus-payment (DVP) settlement for transactions through its Bond Connect scheme, cleared through CCDC.

The lack of such a settlement system had been seen as the last major issue preventing European Undertakings for Collective Investment in Transferable Securities (UCITS) funds from investing in China’s bond market through Bond Connect.

Bond Connect, a Hong Kong venture between the China Foreign Exchange Trade System (CFETS) and Hong Kong Exchanges and Clearing, confirmed DVP settlement implementation in an announcement on August 27.

It subsequently announced the launch of block trade allocations in a move the company said would simplify investors’ trading strategy.

DVP settlement and block trade allocations are two conditions for the inclusion of China’s bond market in the Bloomberg Barclays Global Aggregate Index.

The index, the first major global index to include Chinese bonds, will phase in inclusion of Chinese bonds over a 20-month period starting April 2019.