18th Asia Bond Markets Summit 2023 | The Asset | 31 August 2023 | TBA, Hongkong

The tide is turning. China has finally exited its zero-covid policy after almost three years. Boosting its economy is the country’s top priority as the world heads into recession. Foreign investors are keenly watching the country’s capital markets, which have increasingly become accessible on the back of supportive monetary policies and the continued internationalization of the yuan.

China’s bond market, in particular, is expected to benefit from regulatory reforms and the country’s common prosperity agenda. As of November 2022, the total size of the market, based on data from China’s central bank, crossed the five-trillion-yuan mark. Corporate credit bonds, which are now worth over one trillion yuan, have maintained the same level as a year ago. Financial bonds are worth 954 billion yuan, followed by treasury bonds, which topped 923 billion yuan, and local government bonds worth 247 billion yuan.

The government has recently revamped rules to make panda bonds more attractive for overseas issuers. The recent rally in China’s property sector, supported by the government’s “three arrows” programme, bodes well for Asia’s high-yield sector. Decarbonization remains a major priority and the green bond market is playing a big role as China works towards its net-zero commitments.

Chinese bonds, now included in major global bond indices, have become an important fixture for global investment portfolios. Their resiliency and diversification benefits have made them a safe bet for investors. However, a weak yuan and a divergence in China’s monetary policies from that of other major economies are keeping foreign investors at bay. Moreover, greenwashing is still a major concern for investors who are urging regulators to keep a tight lid on the practice, particularly with regard to state-owned enterprise green bond issuance.