When ranking the world’s countries in terms of size, China often holds one of the top three positions regardless of the data being measured. It is, for instance, home to the largest population, the second largest economy by GDP and the third largest bond market in the world. It is this last point that was the focus of the recent announcement by the Chinese government that the country’s $9 trillion bond market would now be accessible to overseas investors via the Bond Connect program with Hong Kong. Both corporate and government bonds are included in the program. This development is the latest in a series of measures by China to open its financial markets to greater foreign investment.
Bond Connect comes on the heels of 2016 reforms that loosened restrictions on the Chinese interbank bond market, allowing certain long-term foreign investors to buy Chinese bonds without being subject to quotas or license approvals. Prior to that, China and Hong Kong launched the Shanghai-Hong Kong Stock Connect scheme in 2014, which was further expanded in 2016.
The Bond Connect scheme is similar to Stock Connect in that it allows foreign institutional investors to trade Chinese securities on a Hong Kong exchange. However, while the Stock Connect scheme also allows Chinese investors to trade in foreign securities, this is not yet a feature of the Bond Connect scheme.
Total debt securities outstanding and total GDP for largest bond markets as of 2016 ($B)
As we can see above in the chart of the top five largest bond markets in the world, China’s is the only one that remains smaller than its GDP. In addition, only about 2% of the Chinese bond market is held by foreign investors, while in the US that number sits at about 30%. This could seem to imply significant growth potential for the Chinese bond market as it becomes aligned with the other large bond markets of the world.
With the launch of Bond Connect, the ease of accessing Chinese bonds is expected to increase the liquidity of the instruments while providing additional capital to Chinese companies. In addition, the supply of Renminbi denominated assets held globally is expected to increase dramatically helping to integrate the Chinese economy with the global economy.
For more on how FTSE Russell closely watches China, please see the China Indexes section of our website.
© 2017 London Stock Exchange Group plc and its applicable group undertakings (the “LSE Group”). The LSE Group includes (1) FTSE International Limited (“FTSE”), (2) Frank Russell Company (“Russell”), (3) FTSE TMX Global Debt Capital Markets Inc. and FTSE TMX Global Debt Capital Markets Limited (together, “FTSE TMX”) and (4) MTSNext Limited (“MTSNext”). All rights reserved.
FTSE Russell® is a trading name of FTSE, Russell, FTSE TMX and MTS Next Limited. “FTSE®”, “Russell®”, “FTSE Russell®” “MTS®”, “FTSE TMX®”, “FTSE4Good®” and “ICB®” and all other trademarks and service marks used herein (whether registered or unregistered) are trade marks and/or service marks owned or licensed by the applicable member of the LSE Group or their respective licensors and are owned, or used under licence, by FTSE, Russell, MTSNext, or FTSE TMX.
All information is provided for information purposes only. Every effort is made to ensure that all information given in this publication is accurate, but no responsibility or liability can be accepted by any member of the LSE Group nor their respective directors, officers, employees, partners or licensors for any errors or for any loss from use of this publication or any of the information or data contained herein.
No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the FTSE Russell indexes or the fitness or suitability of the indexes for any particular purpose to which they might be put.
No member of the LSE Group nor their respective directors, officers, employees, partners or licensors provide investment advice and nothing in this communication should be taken as constituting financial or investment advice. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any representation regarding the advisability of investing in any asset. A decision to invest in any such asset should not be made in reliance on any information herein. Indexes cannot be invested in directly. Inclusion of an asset in an index is not a recommendation to buy, sell or hold that asset. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.
No part of this information may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of the applicable member of the LSE Group. Use and distribution of the LSE Group index data and the use of their data to create financial products require a licence from FTSE, Russell, FTSE TMX, MTSNext and/or their respective licensors.
Past performance is no guarantee of future results. Charts and graphs are provided for illustrative purposes only. Index returns shown may not represent the results of the actual trading of investable assets. Certain returns shown may reflect back-tested performance. All performance presented prior to the index inception date is back-tested performance. Back-tested performance is not actual performance, but is hypothetical. The back-test calculations are based on the same methodology that was in effect when the index was officially launched. However, back- tested data may reflect the application of the index methodology with the benefit of hindsight, and the historic calculations of an index may change from month to month based on revisions to the underlying economic data used in the calculation of the index.
This publication may contain forward-looking statements. These are based upon a number of assumptions concerning future conditions that ultimately may prove to be inaccurate. Such forward-looking statements are subject to risks and uncertainties and may be affected by various factors that may cause actual results to differ materially from those in the forward-looking statements. Any forward-looking statements speak only as of the date they are made and no member of the LSE Group nor their licensors assume any duty to and do not undertake to update forward-looking statements.