BEIJING, Oct. 22 (Xinhua) -- With a market size exceeding 100 trillion yuan, China's bond market is the second largest bond market in the world.
As China opens its bond market wider to the world, global investors are attracted to make investment in the market.
-- Market size of 112 trillion yuan
China's bond market grew to the size about 112 trillion yuan as of the end of August this year, up more than 100 percent over the end of 2015, according to data from the People's Bank of China (PBOC), the country's central bank.
The growth came as China's bond market evolved with a more rational structure and offered more diversified bond products compared with the past years.
China's bond market used to be dominated by T-bonds and financial bonds, but now corporate bond, commercial paper, mid-term note, urban construction investment bond, local government bond and special-purpose local government bond have been greatly developed. Various bond offerings can satisfy different financing needs and investors with different preferences, said Zhao Qingming, an international finance expert.
While increasing bond varieties, China has also improved risk management mechanisms and tools. For instance, the country has introduced credit risk mitigation tools for credit risk hedging in the interbank bond market, and brought in treasury bond futures to manage interest rate risks in the exchange market. These are all must-have risk management tools, noted Zhao.
In addition, the country has refined mechanisms on the disposal of bond defaults to make the process more market-oriented and rule-based, according to a notice of the PBOC.
The notice, coming into effect from August 1 this year, made it clear that China would support diversified channels for bond default disposal to make it more efficient, including the trading of defaulted bonds, and the use of credit derivatives to better manage risks.
Also, efforts will be made to connect the interbank and exchange bond markets in China to boost implementation of monetary policy as well as macroeconomic regulation, according to the PBOC.
-- Supporting real economy development
Rising bond issuance, which is a way of direct financing, can provide more capital support for the real economy.
China's local government bond issuance hit 5.679 trillion yuan in the first three quarters, up 35.8 percent year on year. Among the issuance, new sales amounted to 4.3 trillion yuan, accounting for 91 percent of the 4.73-trillion-yuan quota planned for the year, data from the Ministry of Finance showed.
Bond issuance period was extended. The average issuance period of local government bonds in the first three quarters was 15 years, five years longer on a year-on-year basis. A longer issuance period can better meet the financing needs of long-term projects like transportation and water conservancy projects.
Meanwhile, the issuance rate was significantly lowered to 3.38 percent on average in the first three quarters, down by eight base points, indicating reduced financing cost of local governments.
The funds raised from bond issuance were invested in major fields of economic and social development, such as transportation infrastructure, municipal construction, facilities of industrial parks, renovation of rundown areas, ecological conservation, poverty eradication, agriculture, forestry, water conservancy, and natural disaster prevention. Public data showed that over 70 percent of funds collected from the issuance of special infrastructure bonds went to projects concerning transportation infrastructure, public services, infrastructure of municipal construction and industrial parks.
The issuance of T-bonds, and fund granting became more efficient. For instance, the one-trillion-yuan government bonds for COVID-19 response were issued within one and a half months since June. The funds, handled with special transfer and payment mechanism, were granted to cities and counties in early July.
-- Snapping up Chinese bonds
Recent years, more global investors have been attracted to make investment in the increasingly opened Chinese bond market.
Foreign institutions owned 2.94 trillion yuan of Chinese bonds by the end of September, which was 137.5 billion yuan up from the end of August and accounted for nearly 2.96 percent of the entire Chinese bond market, according to data from Bond Connect Company Limited.
The rising inflow of foreign capital resulted from China's continued efforts to advance internationalization of Renminbi and opening-up of its financial sector, making it easier for global investors to buy up Chinese bonds, coupled with the attractive yields of the Chinese bonds investors are after.
Global investors' confidence in China's sound, long-term economic development and its financial sector is reflected in the inclusion of Chinese bonds in the world's three major bond indexes, that is the Bloomberg Barclays Global Aggregate Index (BGAI), J.P. Morgan's Government Bond Index-Emerging Markets (GBI-EM), and World Government Bond Index (WGBI) of FTSE Russell, according to the PBOC.
The rising foreign investment in Chinese bond market will boost reform of its financial sector, further facilitate the internationalization of Renminbi, and reduce the cost of financing, said Zhao, adding that by investing in Chinese bonds, overseas investors can also enjoy the benefits of China's economic development.
In the next step, the PBOC would continue to refine policies to propel greater opening-up of China's bond market and provide more accessible investment channels to domestic and overseas investors.
With improved policies and investment facilitation, more overseas institutions such as overseas banks, hedge funds, bond index funds and securities brokers are likely to enter the Chinese bond market in the future, reported Xinhua Finance, a Xinhua-run financial information platform. (Edited by Su Dan with Xinhua Silk Road, sudan@xinhua.org)
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