Writes through, adds more details, background
BEIJING/HONG KONG, Sept 2 (Reuters) – China published draft rules on Wednesday aimed at facilitating foreign access to the world’s second biggest bond market, potentially fuelling further strength in the yuan currency.
Application procedures for foreign bond investors will be simplified and rules for various investment channels unified, China’s central bank, the foreign exchange regulator and the securities watchdog said in a joint statement.
The changes come ahead of a Sept. 24 decision by global index publisher FTSE Russell on whether to include Chinese government bonds in its benchmark bond index.
The rules are aimed at “making it easier for overseas institutional investors to allocate assets into yuan-denominated bonds,” the People’s Bank of China said on its website.
Beijing has been accelerating the opening-up of its capital markets amid rising tensions with Washington in areas including trade, technology and capital markets.
Lured by China’s attractive yields and an economy recovering from the coronavirus-induced slump, foreign investors have been stepping up purchases of Chinese bonds over the past months.
“This is a trickle which may become a stampede over the coming months and years,” Peter Kinsella, Global Head of Forex Strategy at UBP wrote on Wednesday ahead of the announcement, predicting increased appreciation pressure on the yuan.
According to the draft rules, qualified foreign bond investors and their custodians no longer need to get Chinese regulatory approval for their individual product that invests in China.
And to unify rules under various bond investment channels in China, foreign investors already in China’s interbank bond market can access the exchange bond market directly or via the Bond Connect scheme.
Rules are also unified for foreign bond investors in areas including money payment, foreign exchange and forex risk management. Foreign institutions may trade bond derivatives and bond exchange-traded funds (ETFs) in China.
Even before the draft rules were published, analysts widely expected FTSE Russell to agree to include Chinese bonds in its World Government Bond Index (WGBI) during its annual review later this month.
Standard Chartered predicted an 80% probability that China will be included. Foreign inflows into China’s bond market will reach 800 billion to 1 trillion yuan this year, rising further to 1-1.2 trillion yuan in 2021, the bank forecast.
(Reporting by Judy Hua, Noah Sin and Samuel Shen; Editing by Catherine Evans)
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