China Lowers Barriers for Foreign Investors to Enter Domestic Interbank Bond Market

The CFETS (China Foreign Exchange Trade System) has announced new measures to promote the further opening up of China's bond market.

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CFETS, which is affiliated with the PBOC (People's Bank of China), said it will work with the Bond Connect scheme to launch a new policy for foreign investors. 

Among the measures, Bond Connect service fees will be reduced by 25 percent as of 11 July, in order to lower the trading costs for foreign investors.

CFETS, which operates the trading platform for China's interbank and forex markets, will also launch a service for cross-border bond subscriptions, to make it easier for foreign investors to participate in primary bond market.

A bond issuance system launched in October 2020, known as ePrime, will operate offshore in Hong Kong as a one-stop solution for book building, pricing, and allocation of offshore securities including Kungfu bonds and Dimsum bonds.  

The system will enable CFETS to support online interbank bond issuance, cross-border subscription by foreign institutions, and participation from domestic underwriters.

The offline distribution agreements used historically will be replaced with electronic distribution confirmation forms, making it more convenient for foreign institutions to sign documents and invest in the interbank bond market.

CFETS said it will also expand the trading hours of the onshore FX market to make it easier for foreign investors to carry out hedging activities, and improve the mechanism for trading based on closing prices to better meet the needs of passive bond investors overseas.

A revised handbook – China Interbank Bond Market Overview – has been published in both English and Chinese, to provide foreign investors with information on the domestic bond market.

The handbook provides a detailed introduction to the organisational structure of the bond market, along with details about investment options, trading mechanisms, opening-up policies, business procedures, and market entry process.

The SSE (Shanghai Stock Exchange) and SZSE (Shenzhen Stock Exchange) have also recently issued new rules​ to further open up the exchange-traded bond market to foreign institutional investors.