Bank of China Manila continues to open doorways for Philippine financial institutions wanting to tap China’s fast growing economy.
Through its Bond Connect scheme, the bank is giving local participants the opportunity to invest in the world’s third largest bond market, which exceeded RMB 90 trillion in outstanding bond volumes in August this year.
Bond Connect is a new mutual market access scheme that allows investors from Mainland China and overseas to trade with each other through a connection between the Mainland and Hong Kong financial infrastructure institutions.
Since opening in July 2017, overseas investors from Hong Kong and other regions were able to invest in the China Interbank Bond Market (CIBM).
According to Deng Jun, country head of Bank of China Manila, the internationalization of renminbi (RMB) is creating a natural demand for RMB investments.
“As China opens its market to the world, investors are gaining a deeper understanding of the investment opportunities in the country. This is driving global interest in RMB-denominated assets,” he said in a statement.
As the latest cross-border bond trading and settlement scheme linking the Mainland China and the Hong Kong, Bond Connect has been playing an increasingly important role in enhancing two-way market access, as well as opening up the Chinese bond market.
And the Chinese government has taken a series of measures to improve on the relevant mechanisms and infrastructures under the scheme, including broadening Bond Connect market maker group, enriching transaction mechanism, and increasing forex hedging options.
Additionally, China announced a 3-year tax exemption for offshore investors to invest in the CIBM, which has made Chinese bonds more attractive to offshore investors.
At the recent RMB Internationalization and ASEAN Local Settlements Forum in Nanning City, China, Chuchi Fonacier, deputy governor of the Bangko Sentral ng Pilpinas, acknowledged the broader role of RMB in international trade and financial markets.
“We also recognize that the RMB can also be a source of financing for financial institutions.
The Bank of China, Manila Branch introduced the Panda market to our Bureau of Treasury in the Philippines. With this, the debt capital market of China was tapped and has become a stable source of financing for the National Government of the Philippines. In the future, we hope to see corporates and stock exchanges to use RMB more in their financial transactions,” she said.
Today, the CIBM has drawn significant attention from global investors, making it the fastest growing bond market in the world. RMB-denominated assets have become one of the most appealing options for global investors, and the China bond market has grown into the third largest in the world with an outstanding bond volume exceeding RMB 90 trillion as of 13 Aug 2019.
Although major progress has been made in the open-up of China bond market, there is still huge room remaining in this market for the offshore investors to explore and take up.
With the inclusion of Chinese bonds into the Bloomberg Barclays Global Aggregate Index, more global investors will seek to replicate the benchmark’s holdings and performance, and include Chinese bonds into their investment portfolio.
“We believe the strong government support and the growing attractiveness of the China bond market have paved the path for the growth of Bond Connect. And we anticipate the scheme to continue to expand at a fast pace in the future,” said Deng.
“Bond Connect provides easy access to China’s domestic bond market, but since it is new, offshore investors will need a guide on how to go about the system. This is where we come in. With our experience in both the Philippines and China, we help Filipino investors learn the ins and outs of the investment market in the Mainland.”