HKEX Report丨Outlook for Opening Up of the Mainland Bond Market

北大汇丰金融研究院 2020-08-26

Editor's Note
The opening up of the Mainland bond market is a two-way process centred on “inward opening” and “outward opening”. The experience of developed bond markets in the US and Europe shows that further two-way opening up of the Mainland bond market could be explored by extending “inward opening”and “outward opening” to the offshore dimension - allowing and promoting the development and trading of offshore financial derivatives on Mainland bonds alongside the establishment and development of the offshore RMB bond market.

Author: Chief China Economist's Office, Hong Kong Exchanges and Clearing Limited

REPORT SUMMARY

From over-the-counter trading of treasury bonds in the 1980s to subsequent on-exchange trading and the interbank market, China’s bond market has evolved and grown to become the world’s third largest one. Systems and mechanisms have been effectively reformed and enhanced, including the reform of issuance approval, the introduction of industry self-regulation and the enhancement of market making. Facilitated by the Renmnbi (RMB)’s internationalisation, China’s bond market accelerated its pace of opening up in the past decade. The successful launch of Bond Connect, the announcement of the planned inclusion of Mainland bonds into major global bond indices (such as theBloomberg Barclays Aggregate Index) and other milestones highlighted the fruits of the opening up of the Mainland bond market and the international recognition of such efforts.

The opening up of the Mainland bond market is a two-way process centred on “inward opening” and “outward opening”. By “inward opening”, foreign institutions are gradually allowed to issue bonds in the Mainland market and invest in domestic Mainland bonds. In parallel, “outward opening” is reflected in the orderly progress in overseas bond issuance and bond investment by domestic Mainland entities. The experience of developed bond markets in the US and Europe shows that further two-way opening up of the Mainland bond market could be explored by extending “inward opening” and “outward opening” to the offshore dimension - allowing and promoting the development and trading of offshore financial derivatives on Mainland bonds alongside the establishment and development of the offshore RMB bond market. This would strengthen the RMB as a pricing and settlement currency in overseas financial markets.

FULL REPORT

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