London RMB Business Quarterly - Issue 9: June 2021
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THE PEOPLE’S BANK OF CHINA
REPRESENTATIVE OFFICE FOR EUROPE
London RMB
Business Quarterly
Issue 9: June 2021
2 London RMB Business Quarterly Issue 9: June 2021 3 London RMB Business Quarterly Issue 9: June 2021
With thanks to
Chief Editors:
Jin Mei, Chief Representative, Representative Office for Europe,
The People’s Bank of China
Giles French, External Affairs Director,
City of London Corporation
List of Contributors:
Agricultural Bank of China (UK) Limited
Bank of China (UK) Limited
Bank of Communications, London Branch
Bank of England
Bloomberg
China Construction Bank (London) Limited, UK RMB Clearing Bank
China Central Depository & Clearing Co., Ltd. (CCDC)
China Foreign Exchange Trade System (CFETS)
EBS
ICBC London Branch
London Stock Exchange Group
National Association of Financial Market Institutional Investors (NAFMII)
SWIFT
The People’s Bank of China Representative Office for Europe
This report is jointly produced by the City of London Corporation and The People’s Bank of China Representative Office for Europe.
The City of London Corporation is the governing body of the Square Mile dedicated to a vibrant and thriving City, supporting a diverse
and sustainable London within a globally-successful UK. This publication has been prepared for general guidance on matters of interest
only, and does not constitute professional advice. You should not act upon the information contained in this publication without
obtaining specific professional advice.
No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this
publication, and, to the extent permitted by law, the authors and distributors do not accept or assume any liability, responsibility or
duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this
publication or for any decision based on it. All rights reserved. No part of this publication may be reproduced or transmitted in any
form or by any means without permission in writing from the monitoring group.
Contact: Sisi MU (+44 20 7601 6651 / london@pbc.gov.cn).
4 London RMB Business Quarterly Issue 9: June 2021 5 London RMB Business Quarterly Issue 9: June 2021
Foreword
Catherine McGuinness Giles French Jin Mei
Chair of Policy and Resources External Affairs Director, Chief Representative, Representative Office for Europe,
City of London Corporation City of London Corporation The People’s Bank of China
The world is coming to terms with the unprecedented We are very pleased with the partnership between as China’s economy began to pick up. The report
challenge posed by the spread of COVID-19. Now the City of London Corporation and the People’s discusses China’s RMB market infrastructure with
more than ever, the UK’s global outlook and reach, Bank of China Representative Office for Europe contributions from NAFMII, CFETS, CCDC and key
and understanding of major markets, has significant on the London RMB Business Quarterly report. It learnings from the development of Hong Kong RMB
value in connecting markets and supporting highlights the UK’s influence as a leader in RMB business market, contributed by Bank of China (UK).
resilience. As we look ahead to global recovery, the offshore business and the PBoC’s efforts to develop
depth and breadth of UK financial and professional and sustain the RMB at home and abroad. The London RMB Business Quarterly report serves to
services (FPS) expertise mean we will have a key contribute to the understanding of the UK’s offshore
role to play in supporting rebuilding and growth The City of London is home to 40 Chinese financial market, providing the most recent data, policies and
worldwide. and professional services firms which joined the UK’s commentaries from market participants. In addition,
financial market to build their international presence. it aims to promote the healthy and sustainable
The London RMB Business Quarterly report aims to The RMB is an important global currency and it is development of the UK’s offshore RMB market by
help us maintain the UK’s position as a leading RMB natural, as home to the world’s largest FX market, monitoring and providing feedback to policy makers.
hub outside Greater China, providing an overview that the UK monitors its use and innovations closely.
of the market for the Chinese currency in the UK. We would like to thank all our valued partners who
Whilst there has been a slowing of activity in the With access to onshore RMB investments in China have contributed to the ninth issue of the London
London RMB offshore market during this turbulent rapidly increasing, opportunities for new products RMB Business report. Your contributions play a
period, the report demonstrates the UK’s FPS sector’s and ways to manage currency exposure are also major part in the success of this quarterly report.
resilience, showing that the UK retains its position as growing. This makes for exciting times for the City of
the leading RMB trading hub outside Greater China. London and international investors. In the ninth issue
of the London RMB Business Quarterly we see the
UK’s offshore RMB market has experienced a boom
6 London RMB Business Quarterly Issue 9: June 2021 7 London RMB Business Quarterly Issue 9: June 2021
Market
Overview
China’s economy saw an increase from Q2 2020
while London experienced a booming offshore RMB
market between August to December 2020. The
value of new dim sum bonds issued, RMB FX trading,
Sino-Britain cross-border RMB transactions and RMB
deposits balance grew rapidly, outperforming the
same period in the prior year. However, the RMB
loans balance and volume of RMB Clearing dropped.
According to SWIFT, the UK maintained its position
as the biggest RMB FX hub and payments centre
outside of Greater China, with its share of offshore
RMB foreign exchange transactions hitting 37.49%,
up from 34.4% in last July.
London Skyline
London RMB Foreign Exchange Market London RMB Credit Market China-UK RMB Cross-Border Settlement UK’s Rank as Offshore RMB Centre
About 35% of all CNH spot trading on EBS took place The outstanding RMB deposits and RMB loans in From August to December 2020, cross-border RMB The UK maintained its position as the biggest RMB
during EMEA trading hours in December 2020, up London decreased considerably QoQ in Q4 2020, transactions between China and the UK rocketed FX and payments centre outside of Greater China.
2% from August. In Q4 2020, the average daily CNH however RMB deposits still had a big rise over the to RMB768.51 billion, up 101.42% YoY. Among In December 2020, offshore RMB foreign exchange
FX trading volume in London climbed to GBP88.76 same period of 2019. By the end of 2020, the amount them, cross-border RMB receipts and payments transactions in the UK accounted for 37.49%, up
billion, up 14% QoQ and 34% YoY. of RMB deposits reached RMB64.56 billion, down were RMB403.24 billion and RMB365.27 billion, 3.09% from last August.
14.92% QoQ but up 17.47% YoY. The outstanding representing a net outflow of RMB37.97 billion
London RMB Bond Market amount of RMB loans were RMB45.39 billion, down from the UK to China, while there was an inflow RMB in Global Currency Reserves
Between August and December 2020, 19 newly 25.39% QoQ and 15.71% YoY. of RMB30.61 billion in the same period of 2019. According to IMF, RMB accounted for 2.25% of global
issued Dim Sum bonds were listed on the London Cross-border RMB receipts and payments of Sino- currency reserves as of Q4 2020, up 0.11% from Q3
Stock Exchange, with the value of RMB17.5 billion, London RMB Clearing British bilateral goods trade stood at RMB35.49 2020. When it was included in the SDR basket, the
an increase of 51.7% YoY. By the end of 2020, there Between August and December 2020, the cumulative billion, accounting for 4.6% of the total amount of share registered at 1.07% in Q4 2016.
were 141 Dim Sum bonds listed on the London Stock volume of RMB clearing in the UK was RMB3.73 receipts and payments during the same period,
Exchange with the outstanding value of RMB59.2 trillion, down 25.5% YoY. The average daily clearing keeping a downward trend. Meanwhile, the share of
billion and an average coupon rate of 3.7%. volume was RMB36.23 billion. By the end of 2020, the RMB receipts and payments under capital account
total accumulative RMB clearing volume exceeded continued to increase in line with the further
RMB52 trillion. opening-up of China’s financial market.
8 London RMB Business Quarterly Issue 9: June 2021 9 London RMB Business Quarterly Issue 9: June 2021
RMB Exchange Rate RMB Interest Rate August to December. During this period, despite the
strengthening of the RMB exchange rate, the swap
From August to December 2020, CNY From 1st August 2020 to 31st December China’s economy advanced 6.5% YoY in Q4 2020, price did not fall with the appreciation of the RMB,
strengthened from 6.85 to 6.50 against 2020, the average FX spot rate of USD/ after a 4.9% growth in Q3, higher than the market but increased with the spread, indicating that the
the USD. The RMB FX rate continued CNH in the offshore market was 6.7094, expectation of 6.1%. As the one-year Loan Prime supply and demand of the swap market was mainly
appreciation and the spread between with the USD/CNY onshore FX spot rate Rate (LPR) remained low at 3.85% and over 5 Year driven by financing demand, thus more reflecting the
CNH and CNY turned from positive to 6.7159. The spread between offshore at 4.65%, unchanged for eight months, providing changes in the interest spread between China and
negative, which meant offshore market and onshore in this period was -65 basis reasonable and abundant liquidity to promote the major developed countries. The spread between
investors were more bullish on CNY even points, while the spread of February to economic recovery, while avoiding “overflowing” 6M Shibor and Libor fluctuated above 2.5%. In the
more than China’s onshore market. China July 2020 was +71 basis points. from pushing up asset prices. The yield of Chinese context of banks’ reduction of structured deposits
was the only major economy to see a government bonds fluctuated upward, and the and low cash reserve ratio, the rate of increase in
positive GDP growth of 2.3% in 2020. The spread between China and the US gradually widened, interest rates exceeded market expectations. As a
trade surplus of 2020 in China was also the spread for short term bonds outperformed long result of the continuous expansion of China’s capital
bigger than that in 2019. term bonds. By the end of 2020, the bond yields market, the spread between USD/CNY and USD/CNH
of major developed countries were close to zero swap curve narrowed, especially, the price trend of 1
or negative. The spread of 10 Year government Year CNH and CNY swaps were almost synchronized,
bonds between China and the US fluctuated at and the price difference between the two mainly
a high level at around 240 basis points through fluctuated in a narrow range of 100-300 pips.
The Onshore-Offshore Exchange Rate Differential as of December 2020 The Onshore-Offshore Interest Rate Spreads as of December 2020
USDCNH-USDCNY FX Spot Rate CNH Hibor and 7-Day Repo Rate Spreads
CNH-CNY SPREAD (LHS) USDCNY (RHS) USDCNH (RHS) SPREAD (RHS) Hibor (HICNH1W) (LHS) 7-Day Repo Rate (LHS)
6 3
0.08 7.3
7.2
0.06
7.1
0.04
7.0 4 1
RMB/USD
0.02 6.9
%
%
0.00 6.8
6.7
-0.02 2 -1
6.6
-0.04
6.5
-0.06 6.4
0 -3
02/01/19
02/02/19
02/03/19
02/04/19
02/05/19
02/06/19
02/07/19
02/08/19
02/09/19
02/10/19
02/11/19
02/12/19
02/01/20
02/02/20
02/03/20
02/04/20
02/05/20
02/06/20
02/07/20
02/08/20
02/09/20
02/10/20
02/11/20
02/12/20
24/09/19
08/10/19
22/10/19
05/11/19
19/11/19
03/12/19
17/12/19
31/12/19
14/01/20
28/01/20
11/02/20
25/02/20
10/03/20
24/03/20
07/04/20
21/05/20
05/05/20
19/05/20
02/06/20
16/06/20
30/06/20
14/07/20
28/07/20
11/08/20
25/08/20
08/09/20
22/09/20
06/10/20
20/10/20
03/11/20
17/11/20
01/12/20
15/12/20
29/12/20
01/01/19
15/01/19
29/01/19
02/07/19
16/07/19
30/07/19
13/08/19
27/08/19
10/09/19
12/02/19
26/02/19
12/03/19
26/03/19
09/04/19
23/04/19
07/05/19
21/05/19
04/06/19
18/06/19
Source: Bloomberg, ABC
Source: Bloomberg, CCB
Term Structure of RMB Offshore Interest Rate Spreads in December 2020
Offshore Interest Rate (London) Onshore Interest Rate CNH Hibor
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0&
0N 1W 2W 1M 3M 6M 9M 12M
Source: Bloomberg, CCB10 London RMB Business Quarterly Issue 9: June 2021 11 London RMB Business Quarterly Issue 9: June 2021
London RMB Foreign Average Daily Turnover of RMB FX in London Dim Sum Bond Issuance and Average Coupon Rate London RMB Bond Market
Exchange Market as of December 2020 as of December 2020 on LSE
As reported above, between August and
London RMB FX turnover grew Spot Forwards Swap Option Others Issuance (LHS) Coupon rate December 2020, 19 Dim Sum bonds
significantly during Q4 2020. The average were newly listed on the London Stock
100
daily turnover volume of RMB FX in 8 7% Exchange, with a total issuance size of
London market jumped to GBP88.76 90 7
RMB17.5 billion, and weighted average
6%
billion, the highest since 2015, up 33.8% coupon rate of 3.2%. The value of new
80 6
YoY and 14% QoQ. The distribution of
5% Dim Sum bonds issued during the
RMB FX turnover by counterparty sectors
5
same period increased by RMB6 billion
Million (RMB)
70 4%
remained stable: RMB FX turnover with 4 compared with the same period of 2019,
60 3%
other sectors took the greatest share of 3 an increase of 51.7%. At the end of 2020,
43.3%; followed by RMB FX turnover with 50 2% there were 141 Dim Sum bonds listed
Billion (GBP)
2
non-resident deposit-taking corporations, on the London Stock Exchange with an
40 1%
1
accounting 33.2%; RMB FX turnover with outstanding value of RMB59.2 billion and
UK deposit-taking corporations had the 30
0
1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11
0% weighted average coupon rate of 3.7%.
smallest proportion of 23.5%. 2016 2017 2018 2019 2020
20
Source: LSE
In December 2020, the proportion of 10
the offshore RMB FX trading in London
0
market experienced a slight rise from July. London RMB Credit Market
2015 Q1
2015 Q2
2015 Q3
2015 Q4
2016 Q1
2016 Q2
2016 Q3
2016 Q4
2017 Q1
2017 Q2
2017 Q3
2017 Q4
2018 Q1
2018 Q2
2018 Q3
2018 Q4
2019 Q1
2019 Q2
2019 Q3
2019 Q4
2020 Q1
2020 Q2
2020 Q3
2020 Q4
Trading data from EBS revealed that the
proportion of spot CNH trading volume in RMB Deposits in London as of Q4 2020 The outstanding RMB deposits and RMB
EMEA trading hours was 35%, up 2% than loans in London decreased considerably
Source: Bank of England (BoE)
that in July. Specifically, Asia, EMEA and
RMB Deposits in London Share of RMB Deposits in Foreign Currency Deposits (RHS) QoQ in Q4 2020, however there was a
Americas trading hours registered 57%,
Share of RMB Deposits in Total Deposits (RHS) divergence compared with those in the
RMB FX Turnover by Counterpart Sector in Q4 2020 same period of 2019. The total London
35% and 8% of total CNH spot trading 90
volumes, compared with a distribution of 1.2
offshore RMB deposits balance fell to
60%, 33% and 7% in July, and 51%, 40% 43.3%
80
RMB64.56 billion at Q4 2020, down
and 9% a year ago. Other sectors
70 1.0
14.92% QoQ and up 17.47% YoY, as
60
0.8
the share of RMB deposits in total UK
23.5% deposits and total foreign currencies
Billion (RMB)
50
UK deposit-taking 0.6
slightly shrunk from the previous quarter
%
40
corporations
30 0.4 but increased from Q4 2019. The total
20 London offshore RMB loans balance
10
0.2
reduced to RMB45.39 billion at Q4, down
0 0.0 25.39% QoQ and 15.71% YoY, as the
decrease of interbank lending played the
2015 Q2
2015 Q3
2015 Q4
2016 Q1
2016 Q2
2016 Q3
2016 Q4
2017 Q1
2017 Q2
2017 Q3
2017 Q4
2018 Q1
2018 Q2
2018 Q3
2018 Q4
2019 Q1
2019 Q2
2019 Q3
2019 Q4
2020 Q1
2020 Q2
2020 Q3
2020 Q4
major role.
33.2%
Non-resident deposit-taking
corporations Source: Bank of England (BoE)
Source: Bank of England (BoE)
Spot CNY Volume Distribution by Hour on EBS RMB Lending in London as of Q4 2020
in December 2020
Interbank Lending Lending to Clients by UK Banks
Asia EMEA Americas
80
14
8.42%
11.88%
70
10.57%
12
9.21%
60
11.39%
10
Billion (RMB)
50
7.20%
08
5.75%
40
3.72%
06
4.43%
3.51%
%
30
2.55%
2.62%
1.56%
4.19%
04
2.87%
1.09%
3.76%
1.73%
20
0.73%
1.49%
0.92%
0.26%
0.03%
0.11%
02 10
00 0
00:00
01:00
02:00
03:00
04:00
05:00
06:00
07:00
08:00
09:00
10:00
11:00
12:00
13:00
14:00
15:00
16:00
17:00
18:00
19:00
20:00
21:00
22:00
23:00
2015 Q2
2015 Q3
2015 Q4
2016 Q1
2016 Q2
2016 Q3
2016 Q4
2017 Q1
2017 Q2
2017 Q3
2017 Q4
2018 Q1
2018 Q2
2018 Q3
2018 Q4
2019 Q1
2019 Q2
2019 Q3
2019Q4
2020 Q1
2020 Q2
2020 Q3
2020 Q4
Hour (GMT)
Source: EBS Source: Bank of England (BoE)12 London RMB Business Quarterly Issue 9: June 2021 13 London RMB Business Quarterly Issue 9: June 2021
London RMB Clearing RMB Clearing Volume of the Designated UK Clearing Bank The International Status of the position managing the largest share of
as of December 2020 London Offshore RMB Market RMB payments outside greater China.
Between August and December 2020, The top three countries or regions doing
total clearing volume was RMB3.73 2015 2016 2017 2018 2019 2020
According to SWIFT, the RMB’s share of FX transactions in RMB in December 2020
trillion, down 25.5% YoY, with daily 1,400
domestic and international payments were the United Kingdom, the United
average clearing volume of RMB36.23 1,200 currency (customer initiated and States and China. The United Kingdom
billion. Accumulated transaction counts 1,000 institutional payments) in December 2020 accounted for 37.49% of the total,
stood at 35,459. By the end of 2020, the was 1.88%, up 0.02% from July 2020. The
Billion (RMB)
800 slightly higher from July 2020 of 34.40%.
accumulative total RMB clearing volume RMB remained as the fifth biggest global The United States kept an upswing
600
reached RMB52.03 trillion since China payment currency and the third largest momentum and outperformed China
Construction Bank (CCB) London Branch 400
global currency in trade finance market with a share of 16.51%.
obtained its authorisation to become the 200 with the share of 2.05%. The UK kept its
RMB clearing bank in the UK in June 2014, 0
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
and it remains the largest clearing bank
Source: CCB London Branch
outside Asia. RMB’s share as a global payments currency (%)
RMB Clearing Volume of the Designated UK Clearing Bank December 2020 July 2020 December 2018
as of December 2020 (Yearly) 40 40 40
1,200
30 30 30
1,000
China-UK RMB Cross-Border
Settlement 800 20 1.88% 20 1.86% 20 2.07%
Billion (RMB)
600
Between August to December 2020, a 10 10 10
sharp rise was seen in the cross-border 400
0
RMB transactions between China and the 200
0 0
USD
EUR
GBP
JPY
CNY
CAD
HKD
AUD
SGD
THB
NOK
CHF
SEK
PLN
DKK
MYR
NZD
ZAR
MXN
CLP
USD
EUR
GBP
JPY
CNY
CAD
AUD
HKD
SGD
THB
SEK
CHF
NOK
PLN
MYR
DKK
ZAR
NZD
MXN
CLP
USD
EUR
GBP
JPY
CNY
CAD
AUD
HKD
SGD
THB
CHF
SEK
NOK
PLN
MYR
ZAR
DKK
NZD
MXN
CLP
UK amounting to RMB768.51 billion, up
0
101.42% YoY. Within this, cross-border 2015 2016 2017 2018 2019 2020 Source: SWIFT, watch
RMB receipts were about RMB403.24 Source: CCB London Branch
billion while payments reached
RMB365.27 billion, representing a net China-UK Cross Border RMB Payment and Receipt RMB’s share as a global currency in trade finance market (%)
outflow of RMB37.97 billion from the as of December 2020 December 2020 July 2020 December 2018
UK to China, while there was an inflow China-UK Cross-border Receipt in RMB China-UK Cross-border Payment in RMB
100 100
of RMB30.61 billion in the same period 90 90
100
90
of 2019. Cross-border RMB receipts 250 80 80 80
70 70 70
and payments of Sino-British bilateral 60 60 60
200
goods trade totalled at RMB35.49 billion, 50 2.05% 50 1.84% 50 1.83%
40 40 40
accounting for 4.6% of the total amount
Billion (RMB)
150 30 30 30
of receipts and payments during the 20 20 20
100 10 10 10
same period from August to December 0 0 0
2020, representing a falling trend.
USD
EUR
CNY
JPY
IDR
SAR
AED
GBP
VND
PKR
USD
EUR
JPY
CNY
IDR
SAR
AED
GBP
AUD
PKR
USD
EUR
CNY
JPY
IDR
AED
SAR
GBP
BDT
CHF
50
0 Source: SWIFT, watch
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12
2017 2018 2019 2020
Source: PBoC Top Countries (Regions) FX Transaction in RMB
United Kingdom China United States Hong Kong SAR France Others
China-UK Cross Border RMB Payment and Receipt Under
Merchandise Trade as of December 2020
December 2020 July 2020
China-UK Cross-border Payment China-UK Cross-border Receipt
for Merchandise Trade in RMB for Merchandise Trade in RMB
17.86%
20 19.38% 34.40%
37.49%
15
7.93%
7.56%
Billion (RMB)
10
8.30%
5 9.78%
11.91% 16.72%
0 16.51% 12.16%
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12
2017 2018 2019 2020
Source: PBoC Source: SWIFT, watch14 London RMB Business Quarterly Issue 9: June 2021 15 London RMB Business Quarterly Issue 9: June 2021
RMB in Global Official Foreign Exchange Reserves by Currency (USD billion) as of Q4 2020
Currency Reserves
Claims Claims Claims of Claims of Claims of Claims of Claims of Claims Claims Total Foreign
According to IMF, RMB accounted for of U.S. of Euro Japanese Pounds Chinese Australian Canadian of Swiss of other Exchange
Dollars Yen Sterling Renminbi Dollars Dollars Francs currencies Reserves
2.25% of global currency reserves as of
Q4 2020, up 0.11% from Q3 2020. When
it was included SDR basket, the share 14,000
registered at 1.07% in Q4 2016. In Q4
2020, USD’s share of global reserves
witnessed a slight drop from 60.49% in 12,000
Q3 2020 to 59.02%. The share of Euro,
JPY and GBP increased from 20.53%,
5.88% and 4.53% in the quarter before, to
21.24%, 6.03%, 4.69%. 10,000
8,000
Billion (USD)
Allocated Reserves by Currency
Shares of U.S. Dollars Shares of Euro Shares of Japanese Yen Shares of Pounds Sterling Shares of others currencies 6,000
Shares of Chinese Renminbi Shares of Canadian Dollars Shares of Australian Dollars Shares of Swiss Francs
4,000
Q4 2020
2.07% 1.82%
2.25% 0.17% 2,000
2.70% 59.02%
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
4.69% Q1-Q4 Q1-Q4 Q1-Q4 Q1-Q4 Q1-Q4 Q1-Q4 Q1-Q4 Q1-Q4 Q1-Q4 Q1-Q4 Q1-Q4 Q1-Q4 Q1-Q4 Q1-Q4 Q1-Q4 Q1-Q4 Q1-Q4 Q1-Q4 Q1-Q4 Q1-Q4 Q1-Q4
6.03% Source: International Monetary Fund
21.24%
Q3 2020
1.74% 2.01%
0.17%
2.14%
2.52% 60.49%
4.53%
5.88%
20.53%
Source: International Monetary Fund16 London RMB Business Quarterly Issue 9: June 2021 17 London RMB Business Quarterly Issue 9: June 2021
Industry update
The Opening Up of China’s Interbank Market (CIBM)
China Foreign Exchange Trade System (CFETS)
Key Highlights While attracting overseas participants, the interbank settlement cycle or above, making it more convenient Kong settlement banks as providers of FX conversion
RMB market continues to improve the trading for foreign investors. By the end of 2020, foreign and hedging services, fulfilling the investors’ needs of
– By the end of 2020, there are 468 foreign
institutions under CIBM Direct and 625 under Bond functions of the system to make it easier for foreign investors from over 30 jurisdictions including the UK, receiving more competitive price and implementing
Connect which have gained access to the interbank institutions to invest in China’s bond market. In 2016, Germany, Singapore, and the US have executed nearly more active strategies for risk management. Currently,
RMB market. CFETS launched the Agent Trading System (ATS), a RMB200 billion of trades during the extended hours, foreign institutions are allowed to access the
trading system tailored for international participants which accounted for 7% of trading volume of foreign interbank FX market either directly or through Prime
– By the end of 2020, there are 158 foreign that is in line with the international practices. In July investors over the same period. In October, Bond Brokerage; the latter option offers overseas investors
institutions which have become members of the
2017, Bond Connect was launched, a connectivity Connect launched ePrime, a bond issuance system a larger pool of counterparties and internationally
interbank FX market, accounting for 21% of the
that links Hong Kong with mainland bond market, that offers one-stop solution for the book building, aligned trading solutions, and helps them obtain
market’s participant base.
providing another high-speed pathway—after the pricing, and allocation of offshore bonds denominated better prices and lower hedging costs.
– The trading volume of foreign institutions in the Shanghai/Shenzhen-Hong Kong Stock Connect—for in various currencies, facilitating offshore bond
interbank FX market and in the interbank bond foreign institutions to access China’s financial market, issuance and subscription with more convenience Committed to aligning with international practices,
market accounted for 6.5% and 4% of the overall and CFETS collaborated with Tradeweb, enabling and transparency. In December, China CITIC Bank CFETS has been strengthening the domestic G10
turnover in 2020, respectively. overseas investors to trade through the established International Limited became the first overseas currency pairs market and foreign-currency money
Remarkable progress has been made in recent years international interface. In August and October 2018, incorporate entity in the interbank bond market to market, playing a crucial role in raising the liquidity
in the opening-up of China’s interbank market. China under Bond Connect scheme, pre-trade and post- complete a centrally cleared trade in RMB interest rate of foreign currencies in China and enhancing
Foreign Exchange Trade System (CFETS) reported trade allocation were unveiled respectively to facilitate swap through a settlement agent under CIBM Direct, interconnectivity with global markets. Currently,
that, by the end of 2020, in terms of incorporated global asset management companies to manage marking yet another milestone in the opening-up of CFETS’ G10 currency pairs market has eight overseas
entities, 468 foreign institutions under CIBM Direct trading of their product accounts. China’s interbank bond market. market makers; in January 2020, the London-based
and 625 under Bond Connect have gained access XTX Markets became the first foreign non-bank
to the interbank RMB market, trading cash bonds, Later in February 2019, CFETS collaborated with As China’s FX market develops and the business market maker; a total of 67 foreign institutions are
credit lending instruments, pledged repos, outright Bloomberg, enabling foreign institutions to access to of RMB purchase and sale expands in scope and trading in CFETS’ foreign-currency money market,
repos, and interest rate swaps. Meanwhile, a total China’s interbank bond market by submitting orders market influence, CFETS offers foreign investors with which provides a new venue for capital management
of 158 foreign institutions have become members to CFETS X-Trader through Bloomberg terminals under various solutions in managing FX risks of their bond in the context of expansionary monetary policies
of the interbank FX market, accounting for 21% either CIBM Direct or Bond Connect. In April, the Bond investments, further advancing the opening-up of globally. In May 2020, direct links with overseas
of the market’s participant base. Those foreign Connect scheme was upgraded to allow the direct China’s financial market. Since December 2015 when custodians were made available for foreign-currency
institutions have taken part in FX spot, swap, forward, issuance of interbank negotiable certificates of deposit overseas participating banks of RMB purchase and repos; connectivity was built between cross-border
cross currency swap, and foreign-currency lending to foreign investors. In July, CFETS partnered with sale business were first admitted into the interbank financial infrastructures under the cooperation of
transactions, and the trading currencies included USD, Tradeweb and Bloomberg to provide live streaming FX market, the coverage of RMB purchase and CFETS with Clearstream and Euroclear Bank.
EUR, JPY, HKD, GBP, and those listed in the interbank of indicative prices under Bond Connect. In August, sale business has expanded from current account
FX market. the settlement cycle for Bond Connect was extended transactions at initial stage to securities investment CFETS, well positioned as a market infrastructure
to T+3 to facilitate trading and settlement for foreign under Bond Connect and Shanghai/Shenzhen-Hong with the unique advantage of connecting the
As there was a steady increase of foreign institutions investors. In September, the indicative price function Kong Stock Connect, and the progress is accompanied interbank RMB and FX markets, will continuously
in China’s interbank market, CFETS witnessed a rapid of Bond Connect was further enhanced to provide full by an increasing participation of overseas banks. improve trading functions of its systems, bring more
growth of trading activities by foreign institutions. range of quotations, increasing market transparency In 2018, to further align with global practices and convenience to manage FX risks, and provide better
Following the inclusion of Chinese bonds in the and improving price discovery for foreign investors. enable large banks to achieve consistent internal market services, so as to further facilitate foreign
Bloomberg Barclays Global Aggregate Index on April, In December, list trading service went live so that operations among its groups, CFETS announced institutions to invest in China’s interbank market.
2019, there was a significant growth in the number foreign investors may track index investments the updated rules and arrangements for overseas
of foreign institutions and a surge in their trading more conveniently. participating banks and foreign RMB clearing banks
volume. In 2020, the trading volume of foreign to enter into the interbank FX market, so that they
institutions in the interbank FX market amounted to Furthermore, in March 2020, special settlement cycles can adopt centralized management on their RMB
RMB32.7 trillion, up 91% year-on-year and accounting were launched in the interbank bond market; through purchase and sale business. In January 2020, the
for 6.5% of the overall turnover in the interbank FX collaboration with third-party e-trading platforms, State Administration of Foreign Exchange announced
market; in the interbank bond market, the trading CFETS upgraded system functions so that foreign that foreign investors under CIBM Direct scheme are
volume of foreign institutions amounted to RMB9.2 investors may choose T+N settlement cycle online, allowed to directly access the interbank FX market and
trillion, up 72% year-on-year and accounting for 4% of without the need to apply separately. In September, for the specific purpose of hedging they are permitted
the overall turnover in the interbank bond market. The CFETS launched CIBM Direct RFQ services, offering to manage their FX exposures arising from interbank
access of global investors has diversified the types of request-for-quote trading to overseas investors to bond market investments, offering more channels
market participants, and their increasing participation trade onshore bonds directly with more convenience; for FX hedging. In September, CFETS permitted each
has enhanced market liquidity and promoted trading hours for cash bonds were extended to Bond Connect investor to select up to three Hong
integration of domestic and overseas markets. 8:00 p.m. Beijing time for all cash bonds with T+118 London RMB Business Quarterly Issue 9: June 2021 19 London RMB Business Quarterly Issue 9: June 2021
Issuing Panda Bonds in China Interbank Bond Markets: Development and Opportunities
National Association of Financial Market Institutional Investors (NAFMII)
China’s interbank bond market update Overseas investing is increasing and simplifying Main work of NAFMII Investor protection is another key focus area
for NAFMII. On one side, through leveraging the
China’s bond markets comprise of over-the-counter Over the past five years, China has significantly In 2007, NAFMII was approved to be the self-
expertise of its members, NAFMII launched measures
(OTC) markets and exchange markets. The China progressed with the opening up of its bond market regulatory body in the interbank market, subject
covering the bond lifetime to protect investors,
Interbank Bond Market (CIBM) and commercial - opening-up to overseas investors. Not only has to PBoC oversight. With its foundation, the bond
including releasing model investor protection
bank counters are OTC market, while the Exchange access for foreign investors improved, overseas registration-based system was first introduced
covenants for reference and inclusion in the
markets include Shanghai Exchange and Shenzhen credit rating agencies are allowed to operate in into CIBM. Through membership, NAFMII pulled
prospectus, optimizing rules to enhancing accuracy,
Exchange. The CIBM is the major OTC market for China’s domestic market, foreign financial institutions together market forces to promote sound and
completeness of bond information disclosure,
institutional investors. It is the core of China’s bond can get full underwriting licenses and foreign sustainable development of the CIBM. Its members
improving efficacy of bondholders meeting and
market accounting for 80% of trading volume. investor quota restrictions have been removed. The include commercial banks, non-financial enterprises,
exploring the introduction of a bond trustee
Since its formation in 1997, the CIBM has grown to overseas credit rating agencies S&P Global and Fitch financial infrastructures, security firms and so on, the
mechanism in CIBM.
dominate bond issuance and trading in China. As Ratings have already been rating Chinese entities number of which exceeds 8,000 in total.
the world’s second largest bond market, at the end through their respective wholly owned Chinese
On the other, in light of increasing bond defaults
of 2020, China’s bond market outstanding volume subsidiaries. These measures have made the Chinese One of the primary roles of NAFMII is operating
in the market since 2014, NAFMII was directed by
stood at RMB117 trillion, of which RMB100.7 trillion onshore bond market not only accessible but more the registration and issuance of non-financial
PBoC to provide guidelines on possible ways to deal
was in CIBM, accounting for over 86% of that total, convenient to participate in. enterprise debt financing instruments. Lots of
with the default for market participants as well as
according to PBoC statistics. improvements have been made over the years in
on outlining the roles and responsibilities of parties
To further advance foreign investment, major the standardisation and efficiency of registration
involved in a default. At the same time, regulations
Types of Bond and Issuance Structure in CIBM steps have been taken in harmonising regulatory and issuance as well as the information disclosure
and rules on debt financing instrument are enforced
rules, removing quota restrictions and facilitating of issuers and intermediary agencies. With the
After over two decades of development, the bond by NAFMII’s Self-disciplinary Office, violation of which
settlement over the past few years. In September exception of popular products like super-short
products in China’s interbank bond market are now usually subject to penalties including warnings,
2020, the Chinese regulatory authorities jointly commercial paper (SCP), commercial paper (CP),
quite similar to those in the U.S. and European suspension of business and public condemnation.
released the Announcement on Overseas medium term note (MTN), NAFMII continues to
markets. In 2020, total issuance in CIBM reached For major breaches of law that are beyond its
Institutional Investors Investing China’s Bond Market innovate and expand the debt financing
RMB48.5 trillion; a 26.5% year-on-year increase. disciplinary jurisdiction, NAFMII will refer the case
(consultation version) (the Announcement). The instrument product pool to meet market demand.
At the end of 2020, the outstanding government to the regulatory authorities. Though bond default
Announcement established an overall framework for Green notes and asset-backed notes (ABN) are
bond was RMB45.7 trillion (42.5% of total CIBM is rising in recent years, credit risk of the market is
overseas institutional investors to invest in China. two of those examples. By the end of 2020, the
outstanding volume), financial bond RMB41 trillion overall controllable.
For foreign investors who already entered CIBM, outstanding balance of various types of debt
(40.3%), corporate credit bond RMB18.2 trillion (17%)
the Announcement allows them to invest directly financing instruments totalled over RMB12 trillion
(See Pie Chart 1).
into the exchange bond market or they can invest (See Pie Chart 2).
through a mechanism connecting the two markets. In
terms of aligning the three existing routes into CIBM,
Types of bond and proportion to the total measures such as simplifying investors pre-filing Note:
Types of NAFMII debt financing instrument and
outstanding balance in CIBM (by end 2020) work, enabling capital transfer between custodian 1. SCP is short for super-short term
amount under custody by end of 2020 (bn RMB, %) commercial paper
account under QFII/RQFII regime and the same
Government bond Financial bond Corporate credit bond investor’s CIBM Direct account are already in place. 2. CP is short for commercial paper
MTN Project revenue note Green note SCP
3. ABN is short for asset-backed notes
For overseas central bank investors, China Private placement CP ABN
4. MTN is short for medium-term notes
17.0% announced last year that they will allow settlement
Source: NAFMII
agent banks or account banks to provide liquidity
1648.5
management services such as intraday or overnight 99.4
(13.3%)
account overdraft for overseas central bank (0.8%)
42.5% investors, a move aimed at facilitating capital
2142.9
turnover. RMB bonds held by foreign investors in 7.9
(17.3%)
CIBM rose to record high of RMB3.25 trillion by 2020 (0.1%)
40.3% year-end (3.2% of total), reflecting that in the low- 503.9
growth world, China’s bond market provided stable
(4.0%)
and attractive yield for international investors and
brought investors’ confidence and opportunities. 701.2
7283.2
(58.8%) (5.7%)
Source: NAFMII20 London RMB Business Quarterly Issue 9: June 2021 21 London RMB Business Quarterly Issue 9: June 2021
Panda bond market progress Over the past year, with a view to improving the The Leading Benchmark of China’s Bond Market: ChinaBond Pricing Data Updates
efficiency of its registration-based system and to
Panda bonds are RMB-denominated bonds issued by China Central Depository & Clearing Co., Ltd. (CCDC)
further strengthening market transparency, NAFMII
non-Chinese issuers in the Chinese onshore market.
introduced a series of new rules regarding the
The first panda bonds were issued by International Summary
panda bond market. Consistent with international
Finance Corporation and Asia Development Bank in
practices, NAFMII formulated the Detailed Rules for In recent years, China’s bond market has grown to ChinaBond Indices, and it has become the leading
2005, after which the market has kept welcoming
the Administration of Tiered Management of Debt the second largest bond market in the world and pricing benchmark of China’s bond market that
more types of issuers from different sectors,
Financing Instruments of Overseas Non-Financial become attractive to international investors due reflects the prices and risks of RMB bond market.
including sovereigns like Hungary and Philippines,
Enterprises (the “Detailed Rules”) to categorize panda to the opening-up of the economy. By the end of While facilitating the opening-up of China’s bond
international development agencies like the World
bond issuers as either seasoned issuers or general 2020, overseas investors’ holding of RMB bonds market and contributing high-quality development
Bank and New Development Bank, non-financial
issuers. Registration and issuance of non-financial in China interbank market had reached RMB3.25 of green finance, ChinaBond Pricing Data becomes
enterprises like leading car-makers Daimler and
enterprise debt by seasoned issuer can prepare one trillion, or USD500 billion, up 50% year-over-year. a valuable guide for overseas investors as it offers
BMW. China’s panda bond market continues to
set of registration documents covering multiple types The substantial increase has spurred the demand reliable reference indicators and risk management
develop and internationalise. As of the end of 2020,
of debt financing instruments (include but not limited for risk management tools and benchmarks in the tools to help them understand the market
panda bond issuance in CIBM stood at RMB305.45
to CP, SCP, MTN) and apply for universal registration bond market. mechanism thoroughly, update development trend
billion, with RMB264.95 billion of non-financial debt
(referred as “DFI Registration”). In respect of different clearly, and increase their operational efficiency.
financing registered with NAFMII and issued in CIBM
issuer profiles of sovereigns, supranational and The ChinaBond Pricing Center Co., Ltd. (hereinafter
(See Pie Chart 3).
agencies (SSAs) and non-financial enterprises, NAFMII referred to as “CBPC”), which firstly published China’s Well recognised and highly valued in Chinese
made respective guidelines for these two types Government Bond Yield Curve in 1999, is a wholly financial market
of issuers. owned subsidiary of China Central Depository &
Panda Bond issuer type and accumulative CBPC issues yield curves covering sovereign bonds,
issuing amounts by end-2020 (Bn RMB, %) Clearing Co., Ltd. (hereinafter referred to as “CCDC”).
In 2020, agencies and non-financial enterprises both policy bank bonds, local government bonds,
CBPC is the benchmark pricing platform of CCDC
have issued Covid-19 bonds. The Asia Infrastructure commercial paper & notes, corporate bonds, and
International leveraging its neutral status and advantages of being
Non-financial enterprise Sovereigns
development agencies Investment Bank raised a RMB3 billion sustainable commercial bank bonds etc. More than 80,000 bond
the central securities depository.
development bond in June 2020. The proceeds valuations and more than 900 indices are published
were used to fund AIIB’s financings, including those every day. ChinaBond Pricing Data has become
Over the past 20 years, CBPC has reviewed
20.96 under AIIB’s COVID-19 Crisis Recovery Facility (CRF) the leading benchmark of RMB bond for bond
international benchmarking industry standards
(7.9%) according to AIIB website. China has committed to issuance pricing, fair value measurement, investment
to compile ChinaBond Pricing Data. This includes
peak its carbon emission in 2030 and also be carbon management, and risk management.
ChinaBond Yield Curves, ChinaBond Valuation, and
13 neutral in 2060. Overseas issuers are encouraged
230.99 to issue sustainability-themed bonds, green bonds
(87.2%) (4.9%)
and other types of bonds to meet diversified
funding demand. Figure 1: The Trend of 10Y US Treasury Bond Yield and ChinaBond Government Bond Yield
China, and the world at large, are standing at Spread (RHS, BP) US Treasury Bond Yield (10Y, LHS%) ChinaBond Government Bond Yield (10Y, LHS%)
a historical juncture after the pandemic. Quick
Source: NAFMII rebound from the pandemic and maintaining normal
5 300
life and work for its people have demonstrated
the resilience of Chinese economy. 2021 is the 250
4
starting year of China’s 14th Five-year Plan, as two
way financial opening up continues its momentum, 200
further development of China’s bond market and 3
financial sector will surely draw more attention 150
around the globe. 2
100
1
50
0 0
04/01/2011
01/11/2011
24/08/2012
02/07/2013
28/04/2014
17/02/2015
15/12/2015
13/10/2016
04/08/2017
01/06/2018
27/03/2019
17/01/2020
18/11/2020
Source: CBPC, FINCHINA
The CRF was created by AIIB as part of a coordinated international response to counter
1
the COVID-19 pandemic and to respond flexibly and efficiently to client demands.22 London RMB Business Quarterly Issue 9: June 2021 23 London RMB Business Quarterly Issue 9: June 2021
By the end of 2020, the scale of bonds that use the institutional users in China, including China’s major Performance Benchmark Tracking Target
ChinaBond Yield Curves as the benchmark interest banking financial institutions and almost all mutual
The total AUM of bonds funds using The AUM percentage of The total AUM of bonds funds tracking The AUM percentage of bond
rate in China exceeded RMB3.7 trillion, accounting fund companies, insurance companies, and securities ChinaBond Indices as the performance bond funds using ChinaBond ChinaBond Indices (100 Million RMB, LHS) funds tracking ChinaBond
benchmark (Trillion RMB, LHS) Indices as the performance Indices (RHS)
for 95% of the universe. The total scale of bonds companies. It is widely used by financial institutions benchmark (RHS)
with ChinaBond Valuation as the benchmark for for transaction pricing, risk control, accounting
prepayment pricing exceeded RMB250 billion, measurement, performance evaluation, and other
accounting for 85% of the universe. The total AUM business aspects. 4.0 84% 4000 100%
of bond funds using ChinaBond Indices as the 83% 90%
In addition, ChinaBond Yield Curves have also been 3.5 3500
performance benchmark exceeded RMB3 trillion,
an 83% market share. The total AUM of bond funds widely adopted as the benchmark for internal fund 83% 80%
transfer pricing and have become an important 3.0 3000
tracking ChinaBond Indices exceeded RMB350 82% 70%
billion, accounting for 85% market share. At present, tool to promote the development of interest
rate liberalisation. 2.5 2500
there are more than 1,000 ChinaBond Pricing Data 82% 60%
2.0 81% 2000 50%
81% 40%
1.5 1500
80% 30%
Figure 2: Benchmark Application of ChinaBond 1.0 1000
Pricing Data in Chinese Financial Market 80% 20%
0.5 500
79% 10%
Benchmark Interest Rate Prepayment Pricing Benchmark
0.0 79% 0 0%
The scale of bonds that use the ChinaBond Percentage of bonds with market The total scale of bonds with ChinaBond Percentage of bonds
2017
2018
2019
2020
2017
2018
2019
2020
Yield Curves as the benchmark interest based interest rates as the Valuation as the benchmark for with market value as the
rate (Trillion RMB, LHS) benchmark interest rate (RHS) prepayment pricing (Trillion RMB, LHS) redemption price (RHS)
4.0 100% 0.30 88% Source: CBPC, Wind
86%
3.5
95% 0.25
84% Facilitates overseas investors investing In 2018, CBPC cooperated with IHS Markit to release
3.0 efficiently in China’s bond market. iBoxx ChinaBond Government and Policy Banks
82%
90% 0.20 Bond Index, the first international bond index using
2.5 Over the past years, the ChinaBond Pricing Data has
80% domestic benchmark price of China’s bond market as
provided overseas investors, including those in the
the index price source. In 2019, the “ChinaBond-ICBC
2.0 85% 0.15 78% UK, with powerful multi-dimensional tools to follow
RMB Bond Index” was released on the Singapore
market updates and the underlying indicator for
76% Exchange, and the ETF tracking this index was
1.5 their investment in China’s bond market. At present,
80% 0.10 successfully listed on the Singapore Exchange in
74% ChinaBond Pricing Data is distributed to global
2020 – this is aimed at meeting the diversified RMB
1.0 investors through Bloomberg, Refinitiv, MSCI, and
72% asset allocation needs of overseas investors. In 2020,
other vendors on a daily basis. More than 150 central
75% 0.05 CBPC won the “Best Index Provider, Fixed Income,
0.5 banks, sovereign funds, and well-known institutions
70% China” award from The Asset. In the same year, five
outside China use ChinaBond Pricing Data as a
indices, including ChinaBond Green Bond Indices and
0.0 70% 0.00 68% benchmark for measuring the fair value of RMB
ChinaBond China Sovereign and Policy Bank Offshore
bond assets.
2017
2018
2019
2020
2017
2018
2019
2020
Bond Index, were successfully listed on the Macao
MOX Exchange, providing investors with diversified
In 2014, the world’s first RQFII Chinese Government
bond price references.
Bond ETF was successfully listed on the Hong Kong
Source: CBPC, Wind Stock Exchange. In the same year, the first RMB
bond ETF tracking ChinaBond Index was listed and
launched on the New York Stock Exchange.24 London RMB Business Quarterly Issue 9: June 2021 25 London RMB Business Quarterly Issue 9: June 2021
Figure 3: ChinaBond Yield Curves Family Supports the development of Green Finance In 2020, CBPC developed and launched the world’s
and Sustainable Investment. first ESG evaluation system in China’s bond market,
covering more than 5,000 issuers of publicly offered
SOVEREIGN BOND – ChinaBond Government Bond Yield Curve CBPC remains committed to the concept of green
credit bonds. CBPC introduced the ChinaBond ESG
development in the international community and
Select Credit Bond Index based on this system. This
GOVERNMENT – ChinaBond CDB, ADBC, EXIMCH – ChinaBond Railway Bond Yield to meet the needs of international investors for
offered high-quality and diverse green and ESG bond
AGENCY BONDS Bond Yield Curve Curve green and sustainable investment. In 2016, CBPC
investment targets for responsible investors in the
cooperated with the Climate Bond Initiative (CBI)
LOCAL
– ChinaBond Local Government Bond Yield Curve international market.
GOVERNMENT BONDS to launch the first batch of domestic green bond
indices, followed by the launch of world’s first climate
– ChinaBond Commercial Paper – ChinaBond Financial Bond of bond index in 2017. CBPC won the Climate Bond
& Note Yield Curve Commercial Bank Yield Curve
CHINESE ONSHORE Initiative’s Award “The First Unlabeled Green Bond
BOND MARKET – ChinaBond Corporate Bond – ChinaBond CD of Commercial
CORPORATE
CREDIT BONDS Yield Curve Bank Yield Curve
Index” and this index becomes an effective tool for
global investors to invest China’s green bond market.
CHINABOND YIELD CURVES
– ChinaBond Urban Construction
Bond Yield Curve
In 2018, ChinaBond Green Bond Index was
successfully listed on the Luxembourg Stock
– ChinaBond ABS Yield Curve – ChinaBond CLO and Lease ABS
Yield Curve Exchange. This landmark development paved the
– ChinaBond RMBS Yield Curve
ABS
– ChinaBond Corporate ABS Yield way for creating an efficient and transparent index
– ChinaBond Consumer Finance
ABS Yield Curve
Curve that attracted international investors to identify and
invest in China’s green and environmental industry.
In 2019, the “Green Concept” RMB Bond Index ETF,
– ChinaBond Chinese Offshore – ChinaBond Real Estate Sector with the ChinaBond Index as the underlying index,
USD Bond Yield Curve Chinese Offshore USD Bond was successfully launched in Taiwan Province, with
CHINESE OFFSHORE Yield Curve
USD BOND – ChinaBond Urban Construction more than RMB6 billion by the end of 2019.
Sector Chinese Offshore USD
CHINESE OFFSHORE
Bond Yield Curve
BOND MARKET
CHINESE OFFSHORE
EUR BOND
– ChinaBond Chinese Offshore EUR Bond Yield Curve
CNH BOND – ChinaBond Local Government Bond Yield Curve Figure 5: ChinaBond Green Bond Indices
ChinaBond China Green Bond ChinaBond China Green ChinaBond China Climate-
Index (Total Return) Bond Select Index Aligned Bond Index
(Total Return) (Total Return)
Figure 4: ChinaBond Indices Family
171
166
FOREIGN CURRENCY
AGGREGATE CONSTITUENT STRATEGY 161
DOMINATED
INDICES INDICES INDICES
INDICES 156
151
146
IBOXX
CUSTOM GREEN BOND INTEREST RATE
CHINDBOND 141
INDICES INDICES INDICES
INDICES
02/07/2018
08/08/2018
14/03/2019
21/10/2019
28/05/2020
31/12/2020
USD BOND OFFSHORE RMB INVESTMENT POSITION
INDICES BOND INDICES INDICES INDICES
Source: CBPC26 London RMB Business Quarterly Issue 9: June 2021 27 London RMB Business Quarterly Issue 9: June 2021
Widely used by government agencies and The China Securities Regulatory Commission Chinabond Yield Curves ChinaBond Yield Curves currently cover more than
organisations to macro-policy implementation (CSRC) recommends mutual fund companies to 3,100 curves including sovereign bonds, policy bank
ChinaBond Yield Curve is a family of curves compiled
and financial market management adopt ChinaBond Valuation as the benchmark bonds, local government bonds, commercial paper
by China Bond Pricing Center (CBPC), a subsidiary
for calculation of net asset value of bonds. This & notes, corporate bonds, commercial bank bonds,
Since 2014, the People’s Bank of China (PBOC), the of China Central Depository and Clearing Co (CCDC).
effectively prevents the redemption risk caused by asset-backed securities, Chinese offshore bonds etc.
Ministry of Finance (MOF), the China Banking and They reflect the interest rate level of bonds with the
the deviation of net asset value calculation in the The types of curves include yield-to-maturity curves,
Insurance Regulatory Commission (CBIRC), and the same credit rating but different terms of maturity in
fund industry, and thus plays a key role in the stable spot curves and forward curves.
Asian Development Bank have successively cited the current market.
development of the fund industry.
and displayed the ChinaBond Yield Curves on their
respective websites as benchmark to measure and
International Monetary Fund (IMF) adopted the
characterize the interest rate level and trend of
three-month ChinaBond government bond yield in
China’s bond market. At present, CBIRC recommends Figure 6: Number of ChinaBond Yield Curve
the SDR interest rate basket as the representative
banking financial institutions to use ChinaBond Yield
interest rate for RMB, which is the only risk-free Number of ChinaBond Yield Curve
Curves as the benchmark for fair value measurement
interest rate in the SDR interest rate basket issued by
and market risk management in order to help
a third-party institution. 3500
commercial banks to meet the requirements of fair
value measurement of accounting standards and 3000
To ensure the integrity and reliability of
risk control laid down under the Basel Accords. It
ChinaBond Pricing Data, CBPC has continuously
also recommends insurance institutions to adopt 2500
aligned with IOSCO Principles of Financial
ChinaBond Government Bond Yield Curve as the 2000
Benchmark since 2019. It has continuously
measurement benchmark for insurance reserve
emphasized the quality management of ChinaBond
to support the steady development of interest 1500
Pricing Data by encouraging data management,
rate liberalisation.
production determination, methodology and 1000
transparency and quality control. CBPC will continue
Since 2009, the MOF has continued to designate the 500
to strengthen the quality management of ChinaBond
ChinaBond Government Bond Yield Curve as the
Pricing Data and build the benchmark for RMB bonds 0
issuance and pricing benchmark of local government
that meets international standards.
2016
2017
2018
2019
2020
bonds and long-term sovereign bonds. By the end
of 2020, the ChinaBond Government Bond Yield
Source: CBPC
Curve was supported the tendering and issuance of
more than RMB33 trillion sovereign bonds and local
government bonds. Figure 7: The Key Maturity of ChinaBond Government Bond Yield
Curve and ChinaBond CDB Bond Yield Curve Trend
ChinaBond Government Bond ChinaBond Government ChinaBond Government ChinaBond Government ChinaBond Government
Yield Curve(1Y,%) Bond Yield Curve(3Y,%) Bond Yield Curve(5Y,%) Bond Yield Curve(7Y,%) Bond Yield Curve(10Y,%)
ChinaBond CDB Bond ChinaBond CDB Bond ChinaBond CDB Bond ChinaBond CDB Bond ChinaBond CDB Bond
Yield Curve(1Y,%) Yield Curve(3Y,%) Yield Curve(5Y,%) Yield Curve(7Y,%) Yield Curve(10Y,%)
6
5.5
5
4.5
4
3.5
3
2.5
2
1.5
1
06/07/2012
06/07/2013
06/07/2014
06/07/2015
06/07/2016
06/07/2017
06/07/2018
06/07/2019
06/07/2020
Source: CBPC28 London RMB Business Quarterly Issue 9: June 2021 29 London RMB Business Quarterly Issue 9: June 2021
ChinaBond Valuations ChinaBond Indices ChinaBond Investment Indices take all accounts
opened in CCDC (excluding the dollar bonds and
The ChinaBond Valuations is the most The ChinaBond Indices aim to objectively reflect the
asset-backed securities) of particular type of
comprehensive and widely used fair value behaviours of the RMB bond market from different
institutions, such as banks, funds and securities
reference of bonds in China. Currently, ChinaBond angles and provides diversified target indices for
companies, as constituents, weighted according to
Valuations cover valuations of bonds, preferred investors. At present, CBPC publishes more than
their market capitalization of positions.
shares, restricted shares, credit risk mitigation 900 daily indices. The product system of ChinaBond
tools, wealth management direct financing vehicle, Indices are divided into twelve series according to
ChinaBond Position Indices take each institution’s
non-standardised asset for wealth management, the difference of compilation methods, including
bond account opened in CCDC to form an individual
credit assets registered in CCRE, insurance asset ChinaBond Indices Family include Aggregate Indices,
aggregate index, containing all bonds (excluding
management products and asset-backed securities. Constituent Indices, Strategy Indices, Foreign
the dollar bonds and asset-backed securities) in
Bond Valuation refers to the valuation and a series Currency Denominated Indices, Custom Indices,
each account.
of related indicators generated through processing Green Indices, Interest Rate Indices, USD Bond
based on market price information, reflecting the Indices, Offshore RMB Bond Indices, China Sovereign iBoxx ChinaBond Indices were created as
realisable reference price at a specific time point in and Policy Bank Offshore RMB Bond (CNH) Index, part of the partnership between CBPC and IHS
the arms-length transaction. Every CIBM working day, Investment Indices, iBoxx ChinaBond Indices. Markit (Markit), in accordance with the Principles
more than 110,000 valuations in total are released, for Financial Benchmarks of IOSCO and EU
including more than 80,000 valuations of bond with ChinaBond Aggregate Indices measure the overall
Benchmark Regulations.
complete coverage for bonds of various currencies in performance of the domestic bond market or of a
the Chinese onshore market. particular type of bonds.
ChinaBond Constituent Indices are similar to Figure 9: Number of ChinaBond Index
ChinaBond Aggregate Indices in terms of the
Figure 8: Number of ChinaBond Valuation (Bond Valuation) measurement of certain market and constituent
Number of ChinaBond Index
selection. 1200
Number of Bond Valuation
1000
ChinaBond Strategy Indices incorporate investment
100000 strategy into indices by setting certain criteria to 800
simulate investment performance. 600
80000
400
ChinaBond Foreign Currency Denominated
60000 Indices convert returns of RMB denominated 200
indices into returns in other currencies by calculating 0
currency returns.
2016
2017
2018
2019
2020
40000
ChinaBond Custom Indices are constructed
20000 Source: CBPC
according to clients’ individual and
diversified demands.
0
Figure 10 : ChinaBond New Composite Index
ChinaBond Green Indices are representative indices
2016
2017
2018
2019
2020
(Net Price)
that comprehensively reflect the development of Index Charge (% RHS) Net Price (LHS)
Chinese green bond market and its overall price
Source: CBPC fluctuation characteristics. 103 0.6
102 0.4
ChinaBond Interest Rate Indices calculate the
101 0.2
return of investing in interest rates of certain types
100 0
of CNY assets.
99 -0.2
ChinaBond USD Bond Indices measure the overall 98 -0.4
return on investments and price fluctuations of the 97 -0.6
overseas USD Bond market. 96 -0.8
04/01/2016
09/08/2016
16/03/2017
23/10/2017
25/05/2018
28/12/2018
02/08/2019
13/03/2020
20/10/2020
Offshore RMB Bond Indices measure the overall
return on investments and price fluctuations of the
offshore RMB denominated bond market including
ChinaBond China Sovereign and Policy Bank Offshore Source: CBPC
RMB Bond (CNH) Index.You can also read
