Fitch: Bond Connect supports China's efforts to boost inflows

Fitch ratings out with a latest report on China’s Bond Connect scheme, highlighting the following:

The "Bond Connect" scheme that provides a new channel for foreign investors to access China's onshore interbank bond market (CIBM) is another example of the authorities' recent efforts to encourage portfolio inflows, and may help put renminbi internationalisation back on track after a lack of progress in recent years.

 The scheme, launched on 3 July, is part of broader government reforms to open up China's onshore bond market, the third largest in the world after the US and Japan. 

The Bond Connect scheme should facilitate higher foreign ownership of onshore bonds over the medium term. Bond Connect's main advantage over CIBM Direct is that regulatory approval is not required to invest in fixed-income products in CIMB.

Foreign institutional investors only need to set up a Bond Connect account with a participating Hong Kong bank. Investors will convert foreign currency to offshore yuan (CNH) to invest in onshore bonds.

Portfolio liquidity management will be important to Bond Connect investors as repurchase agreements cannot yet be conducted through the scheme.