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China takes fresh steps to open bond market to foreigners

China took fresh steps on Friday to facilitate foreign investment in its $20 trillion bond market, saying it would cut service fees, improve overseas access to foreign exchange hedging, and streamline the process of opening accounts.

China will also facilitate cross-border bond subscriptions, and make it easier for foreign passive funds to trade Chinese bonds, the China Foreign Exchange Trade System (CFETS), affiliated to China’s central bank, said in a statement.

Passive funds track indexes, as opposed to active funds where managers pick assets to invest in.

Overseas investors reduced holdings of Chinese bonds for a fourth consecutive month in May, as diverging monetary policies kept Chinese yields pinned below their U.S. counterparts.

The move is aimed at “promoting further opening of China’s bond market”, and deepen capital market reforms, said the CFETS, which operates the platform for China’s interbank and forex trading.

To reduce foreign investors’ trading cost, service fees under the Bond Connect scheme, a major cross-border channel for bond investors, will be slashed by 25% starting July 11, according to the CFETS.

And on Monday, the CFETS will roll out a service for cross-border bond subscriptions, making it easier for overseas investors to participate in the primary market of Chinese bonds.

In addition, CFETS will make it easier for foreign investors to conduct forex hedging business in China, and will further extend trading hours in the onshore forex market.

China will also improve a mechanism for trading based on closing prices to better meet the needs of foreign passive bond investors.

Global index publishers including FTSE Russell and JPMorgan have added Chinese bonds to their indexes, channeling passive money inflows into China.
Source: Reuters (Reporting by Shanghai newsroom; Editing by Toby Chopra and Mark Potter)

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