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Clearstream to launch China bond link this year
Deutsche Boerse AG’s Clearstream announced that it would launch its China Bond Link later this year, offering investors greater access into China’s US$5 trillion interbank bond market.
Darryl Yu 27 Apr 2016
Deutsche Boerse AG’s Clearstream announced that it would launch its China Bond Link later this year, offering investors greater access into China’s US$5 trillion interbank bond market.
The launch will coincide with the renminbi’s introduction into IMF’s SDR basket. The service looks to provide eligible international investors quota-free access to the third biggest bond market in the world.
Citing both the renminbi’s rise in usage and China’s inclusion in global indices, Clearstream in its statement said that recent “developments are expected to fuel considerable demand for exposure to Chinese renminbi assets in the next two to three years.”
The development comes less than year after the People’s Bank of China (PBOC) liberalized access by foreign central banks, sovereign wealth funds and global financial organizations to trade bonds over interbank market without pre-approvals. Previously all foreign access to the Chinese onshore bond market had been restricted to quotas through SAFE’s (State Administration for Foreign Exchange) qualified foreign institutional investor programme (QFII) and the more recent renminbi qualified institutional investor programme (RQFII).
While the further opening of the China bond market create opportunities, it also exposes investors to some of the risks facing a relatively young market. Last year the onshore Chinese bond market witnessed a number of high-profile defaults from the Shanshui Cement Group and Baoding Tianwei with the latter being the first SOE (state-owned enterprise) bond default in China.
"Against the backdrop of sector overcapacity and central government-sanctioned sector restructuring, we think the central government is increasingly unlikely to facilitate support for regional and local-owned issuers unless they are engaged in activities closely aligned to an important national policy,” states a Moody’s research note.  
Despite the risk, the onshore market in China is too big to ignore. “For any Asia credit investor, therefore, having an understanding of China is critical as Chinese issuers make up nearly 40% of new issuance. Excluding China would dramatically reduce the investable universe,” highlights Arthur Lau head of Asian fixed income at PineBridge Investment 
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