Reporter Liu Qi
On July 3, 2017, the "Northbound Connect" of Bond Connect was officially launched, and it is now approaching its fifth anniversary.During this period, the "Southbound Connect" of Bond Connect was launched on September 24, 2021, marking the realization of "two-way connectivity" for Bond Connect.
On the occasion of the fifth anniversary of Bond Connect, the "Related Matters Concerning Further Facilitating Foreign Institutional Investors' Investing in China's Bond Market" came into effect on June 30. Foreign institutional investors who have been allowed to enter the inter-bank bond market can invest directly or through interconnection. Exchange bond market, my country's bond market has taken another important step in opening to the outside world.
It is worth mentioning that on July 1, the China Foreign Exchange Trade System announced that in order to reduce the investment cost of foreign investors, Bond Connect will reduce service fees by 25% on July 11.
Analysts interviewed by a reporter from Securities Daily said that Bond Connect has opened up a new channel for foreign investors to invest in the domestic bond market, and is an important milestone in the process of opening up the domestic bond market to the outside world and the internationalization of the RMB.In the future, the allocation of RMB bonds by foreign investors still has great growth potential and room for growth.
Rapid growth in investment scale
The "Northbound Connect" of Bond Connect was launched on July 3, 2017, and overseas institutions can "one-point access" to the mainland bond market through Hong Kong, China; the "Southbound Connect" of Bond Connect was launched on September 24, 2021, for mainland institutions to invest It provides a convenient channel for investors to invest in Hong Kong and global bond markets.
Zhou Maohua, a macro researcher at the Financial Market Department of my country Everbright Bank, told the "Securities Daily" reporter that Bond Connect is an important mechanism innovation for the opening up of my country's financial industry. Hong Kong's status as a global financial center; Bond Connect provides global investors with diversified asset allocation options, allowing global investors to share the dividends of my country's economic development; at the same time, it also promotes my country's financial market to accelerate the pace of reform, and continuously improve the bond market to serve the real economy. ability.
In the five years since the launch of Bond Connect, the scale of foreign institutions investing in the domestic bond market has grown rapidly. At the same time, the trading activity of Bond Connect has gradually increased. The average daily transaction has increased from about 2 billion yuan in the first month of opening to 35.5 billion yuan in May. It has become an important channel for international investors to invest in the domestic bond market.
Yu Lifeng, a senior analyst at the Research and Development Department of Orient Jincheng, said in an interview with a reporter from Securities Daily that Bond Connect has improved the efficiency of overseas institutions investing in the domestic bond market, and has been welcomed by international investors.Compared with the previous settlement agent model and QFII model for foreign institutions to invest in the domestic bond market, Bond Connect is more convenient to open an account in the market, and its multi-level custody model is more in line with international practice. The system (CMU system) is directly connected to the mainland inter-bank bond market.Since the launch of Bond Connect, the trading rules have been continuously improved. In 2018, Bond Connect fully realized functions such as real-time bond payment redemption and online transaction separation. In 2019, the function of participating in Bond Connect through the Bloomberg terminal was launched, and foreign institutions can invest in the domestic bond market flexibly. The degree and transaction efficiency continue to improve.
According to the latest data from Bond Connect, as of the end of May this year, Bond Connect has brought together 3,513 foreign institutional investors (accounts) from 36 countries and regions around the world, and 78 of the world's top 100 asset management companies have completed bonds. Passed the record to enter the market.
"Over the past five years, Bond Connect's rules on filing, custody, trading, settlement mechanisms and other infrastructure have been continuously optimized, trading rules have been continuously in line with international standards, and the degree of facilitation for overseas institutions to invest in China's bond market has gradually improved. The bond index has been gradually included in Chinese government bonds, and the integration of RMB assets into the international financial system has further accelerated." Yu Lifeng said.
Huge potential for future development
In recent years, positive progress has been made in the high-quality two-way opening of my country's bond market.Various policy arrangements for foreign institutions to invest in China's bond market through direct market access channels have been continuously improved, the scope of entities and investment varieties have been continuously expanded, and the management methods have become more market-oriented.
It is worth mentioning that, on the occasion of the fifth anniversary of the operation of Bond Connect, according to the arrangement on "Further Facilitating Foreign Institutional Investors Investing in China's Bond Market", foreign institutional investors who have been allowed to enter the inter-bank bond market will start from June 30. Since then, it is possible to invest in the exchange bond market directly or through interconnection.
Yu Lifeng believes that after foreign institutional investors are allowed to participate in the bond market of the exchange, it is expected that the scale and proportion of bonds held by foreign investors in the exchange market will gradually increase.In addition, attracting more international investors to invest in the exchange bond market is also conducive to enriching the types of investors in the exchange bond market, diversifying the supply of funds, and enhancing the liquidity and stability of the market.
"Previously, foreign institutions mainly entered the exchange market through QFII and RQFII, while Bond Connect and the China Interbank Bond Market Direct Investment Model (CIBM) channel could only invest in bonds between banks. After the issuance of this document, Bond Connect and CIBM channels Investors can directly invest in the exchange market or indirectly invest in the exchange market through the interconnection between the two markets." Yu Lifeng said that this is mainly to facilitate the institutions that could only enter the domestic bond market through Bond Connect and CIBM channels. Invest in exchange bond markets, such as foreign central banks, sovereign funds, banks and insurance companies.
According to data previously released by the People's Bank of China, as of the end of April 2022, the balance of China's bond market was 138.2 trillion yuan, ranking second in the world since 2016. A total of 1,035 foreign institutional investors have entered China's bond market. The scale of debt holdings was 3.9 trillion yuan, an increase of 225% from the end of 2017.
In Zhou Maohua's view, my country's bond market still has huge development potential in the future and will further attract foreign investment.This is mainly based on several points: my country continues to deepen supply-side structural reforms, and its economic development is improving for a long time; my country is steadily promoting a high-level opening to the outside world, which will facilitate global investors to participate in my country's bond market; RMB assets are not highly correlated with other global assets. Moreover, the yield and currency value of RMB bonds are relatively stable, which helps to enrich the asset portfolio of global investors and has important risk diversification value.
"In the future, the growth potential and room for foreign investors to allocate RMB bonds is still very large." Yu Lifeng said that at present, the proportion of RMB bonds in global asset allocation is relatively low, far below the level of developed countries and major emerging markets. It does not match the size of my country's economy and its proportion in international trade.With the further increase of China's importance in the global economy, the continuous improvement of financial infrastructure and the further opening of the bond market, it is a general trend for foreign capital to continue to increase the allocation ratio of RMB bonds.Moreover, there is still room for further improvement in the reserve demand of the global central bank for the RMB.In addition, RMB bonds are still in the initial stage of foreign capital inflow, and foreign capital mainly holds interest rate bonds and interbank certificates of deposit. In the future, with the further improvement of the infrastructure of the domestic credit bond market, the varieties of domestic bonds held by foreign capital will be further enriched, and the scale will also increase. will be expanded accordingly.
(Editor in charge: Tian Yunfei)
