Despite the regulatory and
procedural issues remaining, it would be a risk to ignore
renminbi (RMB) bonds, given the size of the market. That was
the message from panellists at the International Capital Market
Association’s (ICMA) annual conference last
"From the beginning of this year a key target has been to
open China’s capital markets," said Yu Sun,
general manager at Bank of China. "We want to remind you not
just to invest, but to study the onshore market closely. Access
is getting much easier."
The onshore Chinese bond market
is valued at around $7.4 trillion, while the
US’ is closer to $35 trillion. But while portfolio
flows for western nations are in the 50% range, in China
they’re at less than two percent.
It’s also a hugely liquid market, giving it
somewhat of an edge over the more familiar offshore RMB market,
or dim sum.
But in September last year that looked
set to change with an announcement from the
People’s Bank of China (PBoC) that the onshore
market would soon open to foreign investors. Further investment
quotas were lifted in February.
"We’ll soon have the second-largest bond market
in the world," added Sun. "It can be risky, but good relative
value can be found in the onshore market. For global investors,
it’s a risk to ignore the RMB bond market right
- Speakers at the ICMA’s annual
conference in Dublin last week warned foreign investors that
it would be a risk to ignore the renminbi bond
- Although issues remain with regulations and
documentation, the government has made opening the onshore
market a high priority;
- Worth $7.4 trillion and highly liquid, the
onshore panda bond market has been watched by foreign
investors for some time now;
- They were finally granted access late last year
but default risks have risen since then.
RMB has been on an upward trajectory in recent years.
It’s now the fifth-most used currency for trade
settlement globally, with approximately 40 percent of all banks
using it on a daily basis. A policy objective of the Chinese
government, the RMB finally achieved acceptance into the
IMF’s special drawing rights (SDR) basket in
December last year.
In October it will join the US dollar, euro, Japanese yen
and pound sterling.
But while this was by no means insignificant, Spencer Lake,
chairman of the board at ICMA and vice chairman of global
banking and markets at HSBC said he doubts it will be a
catalyst for change.
"We want to remind you not
just to invest, but to study the onshore market
Speakers at IFLR’s Capital Markets Forum in
London last month echoed a similar sentiment. "While I
don’t see it currently having a huge direct impact
on the capital markets, it certainly shows the world embracing
RMB," said Paul Browne, partner at
Simmons & Simmons.
"A more meaningful event would be bringing the yuan into
investment indexes, like the MSCI [Morgan Stanley Capital
International]," said BoC’s Sun. "With passive
investors following the index it would create far more value in
But despite opening the onshore panda bond market having
been made a policy objective in China, complications remain,
with issuing RMB debt outside of China still the most
attractive option. It was reported last week that
Hungary, planning its first sovereign issuance, had
considered doing so onshore but was put off by the arduous
documentation process, opting for the less liquid but more
familiar dim sum market instead.
Volatility has also become a regular feature of the onshore
market now, with the default risk running high.
It’s not limited to the private sector
two state-owned enterprises have missed bond payments this
"Despite the lingering legal and accounting issues with both
the dim sum and panda markets, it’s really moved
from an exercise in the exotic to being just another currency,"
said Charles Hawes, partner at Simmons & Simmons. "Many big
corporates are now issuing debt in RMB."
Building a buoyant, safe panda bond market
Unleashing China’s interbank bond market
China regulators must coordinate for RMB bond growth
PRC rules divide public, private sector