China expands foreign access to bond market with repo facilitation

China has broadened foreign investors' access to its bond market by facilitating their bond repurchase or repo transactions, a new landmark move of financial market opening-up, according to the People's Bank of China, the country's central bank, on Friday.

In a joint announcement with the China Securities Regulatory Commission and the State Administration of Foreign Exchange, the PBOC said foreign institutions eligible for spot bond trading in the onshore market — including central banks, international financial organizations, sovereign wealth funds, commercial banks, insurers, securities firms, fund managers, futures companies, trusts and long-term investors such as pension and charitable funds — may now participate in bond repo transactions.

This widens the scope of foreign participation in onshore bond repos. Previously, foreign sovereign institutions, overseas renminbi clearing banks and overseas banks participating in cross-border renminbi settlements were allowed to conduct repos in the interbank market since 2015. This year, an offshore repo program was also launched under Bond Connect with the Hong Kong Monetary Authority.

The PBOC said the new move responds to foreign investors' growing demand for liquidity management.

In general, bond repos allow investors to temporarily exchange securities for cash and later reverse the transaction, making them an effective tool for managing short-term funding needs.

The central bank said repo business models will be aligned more closely with international practices, enable the transfer and use of underlying bonds and provide greater convenience for foreign institutional investors in conducting repo transactions.

"It will further enhance the attractiveness of renminbi-denominated bond assets, improve the qualified foreign institutional investor (QFII) regime and strengthen Hong Kong's role as an international financial hub," the PBOC said.

Li Bing, head of Asia-Pacific at Bloomberg, said the move will significantly expand overseas investors' access to renminbi liquidity, marking an important moment in the internationalization of the Chinese bond market and enhancing the appeal of renminbi assets to global investors.

By the end of August, 1,170 overseas institutions from 80 countries and regions had entered China's bond market, holding about 4 trillion yuan ($561 billion) in bonds, official data showed.