Recently, many foreign-funded banks have obtained the qualification and licenses for entering the interbank bond market of China, indicating the further opening-up of this market.

 

On January 17, the State Council issued the Circular on Several Measures for Expanding Opening-up and Active use of Foreign Investment. In accordance with the circular, the finance industry will play a key role in relaxing restrictions on access of foreign investment. Explicitly, emphasis is laid on relaxing the restrictions on access of the foreign investment concerning financial institutions engaged in banking, securities companies, securities investment fund management companies, futures companies, insurance organizations and insurance intermediaries.

 

Zhang Chenghui, director of the Financial Research Institute of the Development Research Center of the State Council, told International Business Daily, “The opening-up of the financial system is an irresistible trend. Currently, in the finance industry of China, the insurance sector is opening up to the largest extent, and the banking and securities industries are opening up in order.”

 

Ning Jiezhe, vice chairman of the National Development and Reform Commission, recently said that the circular mentioned above does not only mean to allow more foreign investment to enter into the banking, financial and securities institutions of China, including the securities fund, insurance and insurance agency institutions, but also aims to support foreign-funded enterprises in China to enter into the Chinese stock and capital markets and the main board and new third board markets.

 

Opening-up of banking industry may focus on business opening-up

 

This time, the State Council targets at six types of financial institutions to relax the restrictions on access of foreign investment to further promote a new round of high-level opening-up. The access of foreign investment to the finance industry or the establishment of wholly foreign-owned branches will directly lead to competitive relations in the market. “As predicted, the opening-up of the banking industry will mainly focus on establishment of branches and RMB operations. Following the continuously expanded application of the Internet finance and other emerging technologies, the branches of foreign-funded banks and financial institutions have been losing their market value. So, it does not make a lot of sense to restrict the establishment of branches of foreign-funded financial institutions.” Zhang Chenghui said straightforwardly that, currently, foreign-funded banks only take about 2% of the Chinese market, with limited influence on this market. In case of further opening-up of the market, to some extent, there will be more competitions in the financial market, but it will have little influence.

 

On February 7, Citibank (China) announced to become the fifth foreign-invested bank obtaining the qualification for settlement agent operations in the interbank bond market of China under the approval of the People's Bank of China. The other four banks include HSBC, SCB, DB and BNP Paribas.

 

On February 6, JPMorgan Chase Bank (China) also announced that it has obtained the license for underwriting corporate bonds in the interbank bond market of China from the National Association of Financial Market Institutional Investors of China, meaning that it can underwrite the medium-term notes and short-term financing bonds issued by non-financial enterprises as well as other financing instruments approved by related regulatory bodies in the interbank bond market of China.

 

In the reply to International Business Daily, JPMorgan Chase said that it welcomes the further development and opening-up of the Chinese financial market very much and expects to further improve its business operation platforms in China to provide better services for the clients. Before that, it has established a wholly foreign-owned assets management company at Shanghai Free Trade Zone.

 

Foreign-invested banks are optimistic about Chinese bond market

 

Data of China Government Securities Depository Trust & Clearing Co. Ltd. (CDC) indicated that, China now has the No.3 bond market in the world, and there are RMB43.7 trillion under the custody of the Chinese bond market, in which the interbank bond market accounts for more than 90%.

 

In 2010, the central bank of China launched the pilot program for the interbank bond market and began to open up the market to some investors. In 2016, the central bank further relaxed the restrictions on the access of overseas financial institutions to this market and simplified the examination and approval system into registration system. Now, most eligible overseas investors can enter the market.

 

Christine Lam, president and CEO of Citi China, said, “With increasingly accelerated internationalization of RMB, the Chinese bond market has become very active and exciting. Citi has participated in the transactions in the interbank bond market of China for more than 10 years and is now one of the most active market makers. After obtaining the qualification for settlement agent operations in the interbank bond market of China, we will keep on providing industrial leading platforms and services for our global clients.” Xie Tong, director of the Department of Debt Capital Market of JPMorgan Chase in China, said, “The Chinese bond market is now the No.3 bond market in the world. We are very optimistic about the prospect of the market and also hope that we can take the chance of obtaining this underwriting license to further expand our business operations concerning bond underwriting and other operations in the fixed-income market in China.” Xie said that it is also an important step for JPMorgan Chase to improve its operations in China.

 

Xie said that JPMorgan Chase has been paying high attention to the opening-up of domestic bond market and the development of Chinese bond market. “We expect that, following the opening-up of the Chinese bond market, more overseas investors will be attracted to the Chinese market and more world famous overseas issuers will join in the Chinese market to issue Panda Bonds for financing and therefore promote the bi-directional opening-up in the Chinese bond market.”

 

Source: Translated from Invest Guangzhou, February 13, 2017