How Chinese investors boost the Asian G3 bond market

The past few decades have seen a drastic leap forward in the Asian G3 bond market. As China becomes a driving force in the global economy, Chinese corporates will continue to play a vital role in both bond issuance and investment, according to Liu Xiaochun, president of China Zheshang Bank, one of 12 joint stock commercial banks in China, at the 11th Asian Bond Markets Summit – APAC Edition, at Kempinski hotel in Shanghai.

“60% of the investment in our bond portfolio was in Chinese corporates (including SOEs and POEs), which is in-line with the market share of Chinese bond issuance in the Asian market,” says Liu Xiaochun. “In the meantime, as a Chinese bank, we can enhance our relationship with those issuers, who are also our key clients.”

Chinese bond issuers are taking a larger share in the Asian US dollar bond market. Back in 2007, US dollar bonds from Chinese issuers only totalled US$4 billion, accounting for 10% of US dollar bond issuance across Asia. That figure jumped significantly to 116.7 billion yuan (US$16.9 billion) in 2014, accounting for 60% of total dollar bond issuance in Asia.

A result of the growing appetite for Chinese issuance was a comparatively attractive pricing of fixed income products, compared to international issuers. In March, China Zheshang Bank issued its first offshore AT1 preferred stock, which marks the first Chinese bank to issue US dollar Additional Tier 1 securities this year. The US$2.175 billion security was priced at 5.45%, much lower than the industry average.

“If you look at the investor base of the preferred stocks from Chinese issuers, you will find that the major investors are still Chinese investors, who are more familiar with the issuers than overseas investors are,” explains Liu. “There is a lot of demand from long-term investors as well as from the secondary market.”

Going forward, China Zheshang Bank will not only keep an eye on Chinese issuers, but also potential overseas issuers such as corporates and governments.

“Our investment strategy is different from overseas investors. We started to invest in Chinese corporate bonds first and then expanded our overseas investment scope especially in One Belt, One Road countries,” says Liu.