In the News: Bond Market Reforms; Citigroup Fund Custody; and Yum China Offering

September 07, 2020 | BY

Vincent Chow

China issues draft rules easing foreign access to onshore bond markets; Citigroup becomes first U.S. bank to receive fund custody license; and Yum China bags $2.2 billion in Hong Kong secondary offering

Promulgated: 2020-07-19

Citibank branch/photo by Brendon Thorne/Bloomberg

China issues draft rules streamlining foreign access to bond market

China has introduced draft rules easing foreign access to its onshore bond market. On Sept. 2, the People's Bank of China (PBOC), State Administration of Foreign Exchange, and the China Securities Regulatory Commission (CSRC) issued draft rules simplifying application procedures for foreign investors and unifying rules for different investment channels.

According to the joint statement, the proposed rules are designed to make it easier for foreign institutional investors to invest in yuan-denominated bonds. According to the proposed rules, the current single-tier custody system will be replaced by a multitier custody structure whereby foreign investors will no longer have to open trading accounts under their own names but can instead open accounts through mainland custodians. Public comments are being solicited on the draft rules until Oct. 1.

There are three main channels for foreign investors to tap China's onshore bond market: the Qualified Foreign Institutional Investor program and its RMB-denominated equivalent, the Bond Connect program through Hong Kong linking Chinese mainland and Hong Kong markets, and CIBM Direct. However, these channels are currently overseen by different Chinese regulators, with divergent rules and requirements for participants. For example, the multitier custody structure being proposed in the new draft rules is already in place for Bond Connect, but not the other investment channels. The fragmentation of the onshore market has long been seen as a hurdle for attracting foreign investors. In recent years, the Chinese government has pushed for streamlining and unifying the different regimes. On July 19, the PBOC and CSRC announced in a joint statement the integration of the interbank and exchange-traded bond markets, allowing investors to trade bonds on both markets through a single account. According to Bloomberg, China's $13.7 trillion bond market is the world's second largest.

More from CLP:

This premium content is reserved for
China Law & Practice Subscribers.

  • A database of over 3,000 essential documents including key PRC legislation translated into English
  • A choice of newsletters to alert you to changes affecting your business including sector specific updates
  • Premium access to the mobile optimized site for timely analysis that guides you through China's ever-changing business environment
For enterprise-wide or corporate enquiries, please contact our experienced Sales Professionals at +44 (0)203 868 7546 or [email protected]