China Finance with A Cup of Tea Episode 2: China's Debt Capital Market

China’s fixed-income market has historically been neglected by global investors. However, after a remarkable growth in recent years, the size of China’s onshore bond market alone has hit $20 trillion as of December 2021, second only to that of the U.S. Chinese bonds, especially RMB-denominated onshore ones, have been increasingly favored worldwide for high yields, less volatility and asset diversification. Although the size of the bond market matches many of its peers in developed economies, it is still emerging and has certain unique characteristics. It is much less liquid, as most bonds are held by state-owned banks and not actively traded. Compared with government and policy banks, companies play a smaller part in issuing fixed income securities. Market fragmentation with limited connectivity in different sub-markets, is another feature of China’s bond market. In recent years, Chinese financial regulators have carried out reforms and opened up wider by providing more channels for international investors to participate. Global credit rating agencies are also introduced to improve the granularity of the market’s rating. The positive moves are resulting in the market’s inclusion into all global major benchmark indexes. As a result, foreign ownership of the RMB bonds has risen to $630 billion, or 3% of the total. In the second episode of “China Finance with a Cup of Tea,” Caixin invited Kenneth HO, managing director and head of Asia Credit Strategy Research, Goldman Sachs, and PENG Qinqin, senior finance reporter, Caixin Media, to share their insights on what international investors should know about and how to navigate China’s bond market.