China’s NPC Ends With New Initiatives


The market’s immediate focus is on today’s FOMC meeting and Dutch elections. However, China’s annual legislative session (National People’s Congress) ended earlier today, and Premier Li unveiled a new initiative. Late this year, China will allow overseas funds to buy onshore bonds in Hong Kong.  

Details on the mechanics, including implementation timeframe, were not immediately available, but the general thrust is consistent with other measures to boost market accessibility and encourage inflows. The State Administration of Foreign Exchange (SAFE) announced at the end of last month that foreign institutions that invest in interbank debt market could trade a range of financial products,including forwards, swaps, and options mainland counter parties. 

The Shanghai and Shenzhen links to Hong Kong allow accounts in the Special Administrative Region to have access to mainland shares. Trying to convince MSCI to include mainland shares in the emerging market indices, China eased access (to the A shares). However, increasing access to the mainland bond market is also important, and arguably, increasingly so now that the yuan is part of the SDR. Both Hong Kong and China are developing a bond trading platform.  

When the yuan was trending higher and capital inflows, Chinese officials liberalized outflows. Now, in a different part of the cycle, China is seeking to liberalize inflows. It is working with the market to guide it. Foreign investment in China’s onshore bond market estimated around $100 bln. Some bond market indices, which are used by some asset managers as a benchmark, have recently begun including onshore bonds. According to Moody’s sovereign bonds and policy, bank bonds account together for about 37% of the China’s $9.5 trillion interbank bond market. The rating agency expects the inclusion of China’s onshore bonds in the benchmark indices will encourage additional passive inflows.  

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