China is simplifying access to its bond market. It’s about time, too

Regulators are moving towards harmonising the three distinct routes into China’s onshore bond market. For foreign investors, it means timely access to one of the few major fixed-income markets offering positive yields

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An advertisement for renminbi-denominated products is seen in Hong Kong in 2011. Photo: Reuters

Published: 4:00am, 1 Oct 2020Updated: 4:13am, 1 Oct 2020

For much of 2020, addressing the Covid-19 pandemic has been the main focus for governments across the world, with reforms and other initiatives taking the back seat until normalcy returns. However, China’s programme to internationalise its financial markets continues to move forward – something that is especially apparent in the fixed-income space.

As the world’s second largest bond market, China’s ongoing efforts to open up its financial markets to foreign investors has important economic consequences. For the global investment community, it means greater and timely access to one of the few major fixed-income markets where bonds are offering positive yields – as the debt of many large economies has been pushed further into negative territory due to high levels of demand for government bonds.

For China, the effect of removing barriers to overseas investment is that inflows of foreign capital will arrive during a challenging economic period.

Although Chinese production was quick to bounce back after the lifting of extensive national lockdown measures, the continued severity of the pandemic in other parts of the world means that external demand could be stunted for some time to come. Inflows of foreign capital can help relieve some pressure on the domestic economy.

There are signs that the international investment community is taking advantage of increased access to trading opportunities in China. Data from our trading platform points to a 10.6 per cent increase in average daily trading of Chinese onshore bonds via Bond Connect in the first six months of 2020, compared with the same period last year.

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