China takes new steps to open bond market to foreigners


A Chinese yuan note is seen in this illustrative photo from May 31, 2017. REUTERS/Thomas White

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SHANGHAI, July 1 (Reuters) – China took new steps on Friday to ease foreign investment in its $20 trillion bond market, saying it would cut service charges, improve access to foreign exchange and streamline the process of opening accounts.

China will also facilitate cross-border bond subscriptions and facilitate the trading of Chinese bonds by foreign passive funds, the China Foreign Exchange Trade System (CFETS), an affiliate of China’s central bank, said in a statement.

Passive funds track indices, unlike active funds where managers select which assets to invest in.

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Foreign investors reduced their holdings of Chinese bonds for a fourth straight month in May as divergent monetary policies kept Chinese yields below their US counterparts.

The move aims to “promote greater openness of China’s bond market” and deepen capital market reforms, said CFETS, which operates the platform for China’s interbank and forex trading.

To reduce trading costs for foreign investors, service fees under the Bond Connect program, a major cross-border channel for bond investors, will be reduced by 25% from July 11, according to CFETS.

And on Monday, CFETS will launch a cross-border bond underwriting service, making it easier for foreign investors to participate in China’s primary bond market.

In addition, the CFETS will make it easier for foreign investors to conduct forex hedging activities in China and will further extend trading hours in the onshore forex market.

China will also improve a trading mechanism based on closing prices to better meet the needs of overseas passive bond investors.

Global index publishers including FTSE Russell and JPMorgan have added Chinese bonds to their indexes, funneling passive money inflows into China.

($1 = 6.7015 Chinese yuan renminbi)

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Shanghai News Room report; Editing by Toby Chopra and Mark Potter

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