Overview of Chinas Bond Market Opening Michael CHEN Managing - PowerPoint PPT Presentation

Overview of China’s Bond Market Opening Michael CHEN Managing Director, Head of Overseas Client Department CCDC Shanghai Headquarters Aug 11, 2020

The Size and Ratio to GDP of China’s Bond Market Size of China's Bond Market Relative to U.S. Domestic Debt Securities Outstanding to and Japan (As of Q4 2019, in USD trn) GDP Nominal (As of Q4 2019) 45.00 250% 41.23 39.45 222% 217% 40.00 37.90 36.72 35.32 192% 35.00 200% 172% 30.00 150% 138% 130% 25.00 118% 20.00 104% 98% 90% 100% 14.73 78% 15.00 12.91 12.83 12.47 11.76 11.93 11.25 10.64 9.41 10.00 7.75 40% 50% 34% 21% 5.00 0.00 0% 2015 2016 2017 2018 2019 United States China Japan Note: For statistics on China’s bond market size, the outstanding Source: World Bank, BIS, Asian Bonds Online, CCDC amounts of negotiable certificate of deposit (NCD) were included. Source: BIS

Market Structure - CIBM as the Dominant Segment Onshore bonds outstanding by major Infrastructures by market segment bond market segment (CNY trillion) 120.00 Exchange CIBM Market 100.00 80.00 Trading CFETS SSE & SZSE 60.00 40.00 SHCH CCDC CSDC Depository All three types of IG bonds are almost 20.00 100% under CCDC ’s depository. 0.00 PBOC CSRC Regulators CIBM (CCDC) CIBM (SHCH) Exchange Bond Market (CSDC) CCDC = China Central Depository & Clearing Co., Ltd; CNY = Chinese renminbi; CSDC = China Securities Depository and Clearing Co., Ltd; PRC = People’s Republic of China; SHCH = Shanghai Clearing House. Notes: Statistics for the SHCH include negotiable certificates of deposit. Sources: CCDC, CSDC, SHCH.

Milestones in China’s Bond Market Opening -up 2019 2018 1996 2016 • • • • China’s bond market Chinese bonds were included into CCDC was established. PBOC announced to open Bloomberg Barclays Global 1997 CIBM to an expanded scope became the second largest Aggregate Index. • of overseas investors. globally. CIBM was formed. 2005 2017 2020 • • ABF2 was approved to enter. • Bond Connect Northbound Inclusion into JP Morgan’s Government Bond 2010 Program was launched. Index Emerging Market series • Three types of eligible foreign institutions were allowed into CIBM. Since 2011 • QFII and RQFII were allowed to invest in CIBM.

Recent Policies of China’s Bond Market Opening -up Jan Mar May Policies to be Released • • • • Settlement agency agreement might be To offer two FX derivatives Offering To lift quota restrictions on investment removed. transaction channels recycling for QFII and RQFII • • • If AM has registered with PBOC, Investors can trade with up to settlement To simplify procedures of investment financial products can directly open three banks (including BSA). should a trade income outbound remittance, replace • accounts. Investors can settle with both fails to settle on materials requirements such as the audit • Investors might be allowed to sign RMB and foreign currencies. schedule. report and tax filing with Letter of account opening agreements with Commitment on Tax Payment. • custody banks instead of CCDC. To remove limitation on number of custodians Feb Apr Jul • • • Investors can choose between NAFMII, Electronic handling service of Related infrastructure of interbank market and exchange SAC, or ISDA. account-opening materials allows market carry out interconnection to jointly provide • To gradually transform onshore BSA's role BSAs to submit scanned copy of services such as issuance, registration and depository, to custodian bank materials to CCDC via e-mail. • Market infrastructures open mutual nominal accounts.

Market Access – CIBM Direct as the “Direct Flight” Core Advantages Value-added Advantages Cut-off Time Transaction Cost Average around 1bps lower *1 17:00 vs. 12:00 (T+0) 模 Fungible with QFII/RQFII Direct flight 式 Allow two-way bond & fund CIBM Direct 3 counterparties vs 1 transfers for the same investor 一 Bond as Collateral Eligible Products CGB as margin for futures trading Support NOT only cash bonds Counterparties One Fund, Multi-AMs Around 20,000 vs. 47 Bond Connect BSA supports multi-AM for one fund*2 Connecting flight Direct Holding BSA Local Services Clear recognition of beneficial ownership Direct communication with regulators 3 Note: 1) average price is estimated by market participants 2) multi-AM support is depending on BSA internal capabilities

Market Access – CIBM Direct as the “Direct Flight” Outstanding Bonds Held by Overseas Investors CGBs Held by Overseas Investors As A under CCDC’s Depository Percentage of Total Onshore CGBs 25000 30.00% 10.00% 9.00% 25.00% 20000 8.00% 20.00% 7.00% 15000 15.00% 6.00% 5.00% 10.00% 10000 4.00% 5.00% 3.00% 5000 0.00% 2.00% 1.00% 0 -5.00% 0.00% CIBM Direct BC CIBM Direct BC CIBM Direct BC Source: CCDC Source: CCDC

Future Optimization Efforts Cancelling Cancelling Allowing Allowing One One- Bond Bond off Filing Settlement Settlement for Asset Agent Agent Managers Managers Agreement Agreement Enabling RFQ Enabling RFQ Opening of Opening of Trade by Bond Futures System System Market Market Connection Connection Electronific Electronifica BC/CIBM BC/CIBM -tion tion of of Direct: One Direct: One- Primary Primary off Filing Market Market Participation Participatio 8

Thank you! Aug 2020

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