In 2018, Chinese GDP grew 6.6% to reach a total of Rmb90 trillion ($13.4 trillion). It now accounts for 15.8% of global GDP. At the micro level, 16,500 companies are founded every day in China, and nearly 250,000 people take high-speed railway every hour.
The Chinese bond market has been growing at similar, astonishing speeds. At the end of 2018, the Chinese domestic bond market had grown to become the world’s third largest, after the US and Japan. There were Rmb85.7 trillion worth of Chinese bonds outstanding at the end of 2018, representing 95.24% of GDP. About half of these outstanding bonds are rates products. The Interbank Bond Market, the major trading market for Chinese bonds, has been growing significantly since its inception in June 1997. At the end of 2018, the trading volumes on the interbank bond market were Rmb70 trillion, with depository accounting for 87.66% of total.
Foreign institutions are becoming an increasingly important element in the make-up of the contemporary Chinese bond market, especially for rates products. Foreign institutions now own 8.02% of Chinese Government Bonds. Offshore investors can enter China’s onshore bond market through three channels: the Bond Connect Scheme, the CIBM Direct Scheme, and the CSRC regulated QFII/RQFII scheme. Through these schemes, offshore investors now hold Rmb1.5 trillion of interbank bonds and Rmb100 billion is traded via the Bond Connect scheme every month.
The Chinese bond market is now vigorously opening to international investors. The Chinese government bond index has been included in the Bloomberg Barclays Global Aggregate index since April 1. There is also a three-year tax exemption on interest payments derived from onshore bond investments by overseas investors.
One major hindrance to European investor participation in the CNY bond market is the scarcity of issuers with international ratings. Meanwhile, domestic Chinese rating agencies are not comparable as they rate more than 50% of the issuances as AAA.
To cope with this problem, CICC has introduced an internal rating system. This helps investors to detect early any possibility of a default crisis. CICC is the only investment bank that is able to provide full CNY bond coverage in the credit markets. CICC’s internal rating system covers all existing publicly issued CNY bonds as well as all the issuers. It has a 13-scale scoring mechanism that meticulously differentiates bond quality. The internal rating system has already been adopted by many financial institutions, both in China and abroad, as an important reference for bond investment.
Moreover, CICC provides the most advanced financial services for European investors, whether they are already investing in the Chinese onshore fixed income market, or if they are just getting started. Its cross-border sales team has experience covering international clients for more than 10 years, including central banks, government investment entities, banks, insurance companies, and others. CICC is expanding its client coverage in both the US and Europe. CICC is one of only two securities firms on the Chinese Central Bank’s tier one trading counterparty list, and its fixed income trading team provides quotes and liquidity support to international investors through Bond Connect, CIMB, and QFII/RQFII.
The Chinese Bond Market is enjoying a renaissance, and CICC is well-prepared to help European investors enter the market and participate in the new era ahead. If you need more information from us, we sincerely invite you to browse our website http://www.cicc.com , or kindly send your requests to FI_QF@cicc.com.cn
CICC Fixed Income Capabilities
China International Capital Corporation Limited (CICC), a Chinese investment bank, is highly experienced in bringing domestic financial products to a widening international market. CICC was the first Chinese joint-venture investment bank, having been founded in 1995 by China Construction Bank and Morgan Stanley. It is now at the leading edge of China’s financial markets, offering investment banking, FICC, equities, investment management and wealth management. CICC is headquartered in Beijing, with subsidiaries or branches in major cities around the world including Shanghai, Hong Kong, New York, Singapore, London, San Francisco and Frankfurt.
CICC’s FICC division stands out for its comprehensive coverage and products expertise. The FICC team provides full fixed-income product access to both onshore and offshore clients – primary, secondary, and bond futures. In terms of its primary coverage, CICC underwrites all types of debt securities and has been consistently growing its business in terms of volume, value and market share (see chart below). CICC was the largest underwriter by volume of both non-policy financial bonds and exchangeable bonds in 2018. It was also the third largest underwriter of ABS deals in 2018. In terms of its secondary market business, CICC’s FICC division provides market access, research, and advisory services to both onshore and offshore clients. The trading team was named the “2019 Preeminent Proprietary Trading Dealer” by China Central Depository & Clearing Co., LTD and for two years in a row, 2018 and 2019, has been named “Interbank Market Core Dealer” by China Foreign Exchange Trade System & National Interbank Funding Center (CFETS). CICC Fixed Income Research Team has been named the best FI Research Team in China by both the Wall Street Journal and New Fortune. In 2017, it was named “Quotes Most Accepted by Foreign Institutions via Bond Connect” by CFETS.