BOFIT Viikkokatsaus / BOFIT Weekly Review 2015/30
The interbank bond markets of mainland China have grown rapidly in recent years to nearly $6 trillion and now rank among the world’s largest. At the moment, foreign bond holdings (mainly central banks) represent just a couple of per cent of the bond market. Foreign investors can freely invest in yuan-denominated Dim Sum bonds issued in Hong Kong, although the market is considerably smaller than the mainland bond market.
Yuan clearing banks and foreign banks participating in yuan-settlement operations have had the right to invest in the mainland interbank bond market since 2010. Last month, the PBoC also granted such banks access to mainland market for bond repurchase agreements (repos). Yuan assets raised from repo issues can also be repatriated outside China. The Singapore branch of the Industrial & Commercial Bank of China (ICBC), which has yuan-clearing status, last week became the first foreign institution to issue bond repos in mainland China. More than 100 banks located outside mainland China can now have access to domestic interbank bond and repo markets.
In addition, a new investment fund cooperation programme was launched at the start of July. It lets asset management firms in mainland China and Hong Kong sell shares of officially approved funds on each other’s markets. The arrangement gives Chinese private investors the opportunity to invest in foreign mutual funds and the opportunity for Chinese mutual funds to sell their wares to international investors. The current investment quotas covered by the programme (both directions) are 300 billion yuan ($49 billion). About 850 mutual funds in mainland China and 100 funds in Hong Kong are eligible for the programme.
Foreign investors have been able to invest in certain Shanghai-listed shares via the Hong Kong stock exchange under the Stock Connect arrangement launched late last year. A similar linkage is planned for the Shenzhen and Hong Kong exchanges. Outside these programmes, foreign portfolio investment in mainland China has been limited to special programmes for qualified foreign institutional investors (QFII) and renminbi-qualified foreign institutional investors (RQFII). The granted investment quotas for both programmes have been raised sharply this year. The total quota under the QFII programme at the end of June stood at $76 billion (up 30 % y-o-y), while the quota for the RQFII programme reached 391 billion yuan ($64 billion), up 112 % from June 2014.