China has approved HSBC, Morgan Stanley and 30 other foreign institutions to invest in its $5.9tn domestic bond market, a big step towards opening its capital markets to foreign investment.
China has expanded foreign access to its stock market in recent years, but liberalisation of the domestic bond market — the world’s third-largest, behind the US and Japan — has proceeded more slowly. Economists say loosening restrictions on bond investment is crucial if China wants to persuade international investors to store their savings in renminbi. Heavyweights such as central banks, sovereign wealth funds, insurers and pension funds have portfolios weighted towards fixed income.
The approvals also come as China’s slowing economy and falling domestic interest rates spur capital outflows. Expanding inbound bond investment could help hedge against this.
