China’s domestic bond market more accessible to foreign investors

China's domestic bond market is more accessible to foreign investors than most might think. As of end-2014, foreigners' holdings of onshore China Government Bonds (CGBs) were higher in value terms than their holdings in many regional emerging markets. 

"Irrespective of this year's SDR decision, foreign investors' net purchases of Renminbi-denominated bonds is likely to rise to CNY 350-400bn this year from CNY 273bn in 2014. Including equities, this year's portfolio inflows may reach CNY 500-700bn. We have sketched out a couple of scenarios for cumulative foreign net purchases of China's onshore bonds by end-2020, based on the timing of CNY's inclusion in the SDR basket. If the currency is included in 2015, total inflows will reach CNY 5.5-6.2tn by end-2020", states Standard Chartered. 

If inclusion is delayed to 2020 (Case 2), bond-market inflows may still total CNY 3.9-4.5tn by that date. The inclusion of China's asset markets in international equity and bond indices may help to propel these capital inflows. Analysts expect China's government bonds to be included in major EM local-currency (LCY) government bond indices within two years.