Bank of China: don’t ignore RMB bonds

Author: Lizzie Meager | Published: 23 May 2016
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yDespite 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 week.

"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 now."


  • 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 market;
  • 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 closely"

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 the market."

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 either:  two state-owned enterprises have missed bond payments this year.

"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."

See also

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 investors