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Access to the interbank bond market The latest opening up of the onshore FX market to foreign bond investors completes the list of tools that foreign investors need to facilitate their investment in the onshore China interbank bond market (CIBM). The CIBM is already open to most foreign investors, following the PBoC notice 2016-3 issued in February 2016.
Eligible foreign institutional investors include commercial banks, insurance companies, securities companies, asset management companies, the eligible products sold by these financial institutions to their clients; and other medium-to-long term investors such as pension funds and charity funds. These investors can access the CIBM under this new scheme (CIBM scheme hereafter) by registering with the PBoC Shanghai Head Office via bond settlement agents. The detailed procedures explaining how foreign entities may register and invest under this new CIBM scheme were published in May 2016.
1) Eligible individual foreign institutional investors are not subject to an investment quota. Investors must indicate their anticipated investment amounts upon registration. If less than 50% of the anticipated investment amount is remitted within nine months of registration, investors have to update their anticipated investment amounts. How exactly this requirement is to be fulfilled, however, is subject to interpretation.
2) Remitted funds into onshore China can be in RMB or in other currencies (foreign currencies, FCY). When funds are to be repatriated offshore, they can also be in RMB or in other currencies; the repatriated currency mix should be consistent with the remitted currency mix, or more precisely, the ratio of RMB/FCY of cumulative outward flows should be within +/-10% of the ratio of cumulative inward flows.
3) Eligible foreign institutional investors can participate in bond lending, bond forwards, FRA and IRS for hedging purpose; offshore RMB clearing banks and participating banks can participate in bond repos as well (the PBoC has said that it will consider extending the accessibility of bond repos to more foreign investors in due course based on market development).
4) QFII and RQFII should follow their existing regulations; they can also register under this new scheme.
5) Other existing investors – mainly participating banks – do not need to file separately, but are automatically transferred to the new scheme. Their original investment quotas correspond to the initial anticipated investment amounts.
Foreign public sector investors can already participate in the onshore interbank FX market according to PBoC notice 2015-311.
Now, SAFE notice 2017-5 covers foreign bond investors (private sector) under PBoC notice 2016-3, who are granted access to trade onshore OTC FX derivatives:
6) Foreign bond investors can trade FX forwards, FX swaps, cross-currency swaps and FX options on the OTC market, via their bond settlement agents. Bond settlement agents continue to be subject to the foreign exchange settlement and sales position management as laid out by SAFE notice 2014-53.
