Bond Market

China now has the third-largest bond market worldwide, with a depository balance over RMB 84 trillion, it is dominated by the interbank bond market (CIBM) and supplemented by the exchange bond market.

Key Features of China’s Bond Market 01
Key Features of China’s Bond Market 02

CIBM

China Interbank Bond Market (CIBM) is the most important part of China bond market in terms of either scale or liquidity, accounting for around 90% of trading volume in China’s bond market. By the end of June 2019, the total depository balance of CIBM reached RMB 82 trillion with market participants over 27,000 and the total trading volume of the past year is over RMB 150 trillion.

China Foreign Exchange Trade System and National Interbank Funding Center (CFETS) is the only bond trading platform approved by PBOC in CIBM. It organizes trading service for interbank money, cash bond, repo, bond lending, foreign exchange and derivatives market while covering the full spectrum of trade-related service from issuing, trading, information disclosure, post-trade processing, professional training, and market benchmark. CFETS also carries out daily monitoring of market transactions, provides services for the operation and transmission of PBOC’s monetary policy. In addition, it publishes the RMB FX central parity rate, Shanghai Interbank Interest Rate (Shibor), and Loan Prime Rate (LPR) authorized by PBOC.

Foreign institution investors can invest in CIBM through QFII, RQFII, Bond Connect and CIBM direct, but the bonds listed on Exchange Market can only be invested by QFII and RQFII. The most popular variety of bonds for foreign institution investors is Treasury Bond (64.2%), Policy Bank Bonds (21.2%) and Negotiable Certificate of Deposit (10.65%) due to their low risk appetite.

CCDC

China Central Depository& Clearing Co., Ltd. (CCDC) is a bond depository and settlement institutions approved by PBOC, mainly providing bond registration, depository and settlement services. CCDC is the only general depository for China government bond authorized by the Ministry of Finance, responsible for the establishment and operation of the government bond depository system, it is also granted as the Central Securities Depository in the inter-bank bond market as well as the primary depository for commercial bank book-entry government bond transaction. In addition, CCDC is granted by the National Development and Reform Commission as the general depository for enterprise bond and the third-party agency for pre-issuance technical assessment of enterprise bond. As authorized by the China Banking Regulatory Commission, CCDC is responsible for the development and operation of the Wealth Management Registration System, Trust Registration System, and Credit Assets Registration and Exchange System. CCDC is also authorized to undertake market monitoring.

SHCH

Shanghai Clearing House (SHCH) is an important financial market infrastructure approved and directed by the People’s Bank of China (PBOC), is a Qualified Central Counterparty (QCCP) accepted by PBOC and also one of the central securities depositories in China. Its main business includes registration, custody, clearing, settlement, delivery, margin management and collateral management for direct and indirect RMB and foreign currency transactions and derivatives transactions in financial market; information service and consultancy service etc. SHCH covers corporate credit bonds, financial institution bonds, money market instruments and structured products, including CP, SCP, NCD, ABS etc.

CSDC

With the approval of the CSRC, China Securities Depository and Clearing Corporation Limited (CSDC) undertook all the securities registration, clearing and settlement business of Shanghai and Shenzhen Stock Exchange. Currently CSDC covers the business scope of registration, clearing and settlement services for securities listed in Shanghai and Shenzhen Stock Exchange and National Equities and Exchange Quotation; Clearing and settlement services for securities options and other derivatives listed in Shanghai and Shenzhen Stock Exchanges; Registration, depository, clearing and settlement services for cross-border securities trade such as Shanghai-Hong Kong Stock Connect. Registration, clearing, settlement and custodian services for open-ended fund listed in the mainland market (CSDC accounted for 25% market share), asset management products by securities companies, Mainland-Hong Kong Mutually- Recognized funds; Cross-market custodian and registration transfer services for the bonds transferring between Exchange Market and Inter-bank Market etc.

Enterprise Bond & Corporate Bond

Enterprise Bonds are bonds issued by the central government department, wholly state-owned enterprises or state-owned holding enterprises, the issuance of bonds needs to be submitted to the State Council for approval by the National Development and Reform Commission (NDRC), and regulated by NDRC. Relative to the corporate bonds, enterprise bonds have more restrictions on the issuers, but due to the government background, the credit of enterprise bonds is better than corporate bonds in general.

Corporate bonds are bonds issued by joint stock limited companies or limited liability companies, there is no need for the approval of a government department to issue a corporate bond, and it is regulated by China Securities Regulatory Commission (CSRC). The credit source of corporate bonds is the asset quality, operating status, profitability and sustainable profitability of the issuing company.