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PBOC charts steps for bond market

Chen Jia
Updated: Feb 7,2018 9:32 AM     China Daily

China’s central bank said it will boost the opening-up of the country’s bond market this year while improving the rules dealing with bond defaults, in order to prevent and reduce financial risks.

The People’s Bank of China listed nine targets for 2018 after the closure of its annual work conference on Feb 6, pledging to maintain a “prudent and neutral” monetary policy tone.

Further deepening the “two-way” opening-up of China’s bond market will promote the financial market’s steady and healthy development, according to a statement released on the PBOC’s website.

The Mainland-Hong Kong Bond Connect began trial operations in July 2017, allowing qualified overseas investors to buy bonds in the mainland interbank bond market, either with Chinese yuan or foreign currencies.

Zeng Gang, director of banking research at the Chinese Academy of Social Sciences’ Institute of Finance and Banking, told China Daily that the planned measures would allow more foreign capital into the domestic bond market, while encouraging more Qualified Domestic Institutional Investor funds to invest in overseas bond markets.

“Encouraging more Chinese enterprises to issue yuan-denominated bonds in foreign countries could be another path to drive the opening-up,” Zeng said.

The PBOC said it also plans to strengthen financial support for the rental housing market and to better regulate internet-based financing. This year, it plans to further tighten regulation on shadow banking businesses and real estate financing, as part of its Macro Prudential Assessment framework, to ensure financial stability, according to the statement.

Other annual tasks in 2018 include deepening interest rate reform by further exploring the interest-rate corridor regime for effectively implementing monetary policy, and allowing the market to play a more important role in deciding the yuan’s foreign exchange rate.

The country’s top foreign exchange regulator, the State Administration of Foreign Exchange, also issued a statement on Feb 6, announcing aims to maintain foreign exchange market stability in the coming months, while promoting capital account convertibility in a “steady and orderly” manner.

Yu Chunjiang, a researcher with Chinese credit ratings agency Golden Credit Rating International Co Ltd, said that further opening-up of the bond market, accompanied by deepened foreign exchange rate reform, is important for further opening-up China’s whole financial sector, as a key area to improve economic reforms in the next five years.