Letter from the editor

Has a country’s financial and capital market ever transformed as quickly as China’s has in the last year or so? From the launch of the Bond Connect scheme to the long overdue destruction of barriers to foreign ownership of banks, insurers and rating agencies, China has made dramatic steps to open up to the world.

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On the other hand, the world is becoming less open to China. US president Donald Trump has brought China to task on its trade and investment practices in ways few expected. The result is that a country making efforts to integrate more into the international financial system is increasingly finding itself at odds with the biggest proponent of that system. There could be no better time for GlobalRMB to examine quite how much progress China has made — and what investors should expect next.

In your hands is GlobalRMB’s first special report, the result of hard work and extensive research by a team of journalists who are covering China’s market on a daily basis. Regular readers of GlobalRMB.com will know that we frequently break news on everything from policy announcements to auto loan securitization. But we also pride ourselves on stepping back from the daily noise and examining the bigger picture. That is the purpose of this report.

It would be impossible to describe in this letter all the changes that have taken place in China over the last year, but two of them deserve special attention.

First, the increasing recognition that Chinese onshore bonds belong in global investors’ portfolios. Bond Connect, launched just over a year ago on July 3, has finally managed to nail the formula for how to provide global investors with easy access to the market through Hong Kong’s well-oiled market infrastructure. It has done so while simultaneously giving the Chinese regulators enough oversight over the type of investors — and there are hundreds of them — that are coming in. That has resulted in foreign investors doubling their onshore holdings to over Rmb1.5tr ($220bn) in the past twelve months.

Second, MSCI’s inclusion of A-shares in its indexes has been a huge development. The first rebalancing date at the start of June went by without hiccups and a second one was mere days away as this report went to press. That has taken place despite the return of volatility to the onshore equity market.

As index inclusions continue for both bonds and equities, China’s capital markets will rapidly become, as we teased on our cover, the only game in town.

GlobalRMB has made a pledge to our readers to tackle the difficult questions about China’s capital markets. With this report we renew that pledge, promising to keep an unflinching eye over the one market that — as the global investment community increasingly recognises — has become far too big to ignore.

Paolo Danese