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StanChart says China interbank bond quota scrapped for all investors

[HONG KONG] China has scrapped investment quota for all eligible foreign asset managers to enter its interbank debt market and the implementation details are expected to be finalized this month, Standard Chartered said on Tuesday.

The People's Bank of China (PBOC) said in February that it would allow all kinds of financial institutions that are registered outside of China to buy bonds in the interbank market and would scrap quotas for medium and long-term investors.

The regulator has yet to announce any operational details of this expanded investment scheme, leaving market players in the dark for now on whether individual quotas will be set for fund managers other than medium and long-term investors and if FX conversions should be conducted onshore or offshore.

"Our later clarification shows that basically it's open for all investors and as long as your agent banks agree to onboard you and you complete your filing with the PBOC, there is no individual quota," said Becky Liu, a senior rates strategist at Standard Chartered in Hong Kong.

"They only look at aggregate inflows and outflows and could come out with the so-called macro-prudential measures if there are extreme capital inflows or outflows," Ms Liu said.

China introduced the interbank bond market scheme in 2010 to allow foreign central banks, yuan clearing banks and participant banks to buy domestic bonds. The announcement last month significantly broadened the categories of foreign investors that can make use of this channel.

While the move is expected to attract huge inflows into Chinese bonds in the long term, foreigners are likely to wait for more economic and policy clarity, analysts said.

Currently, most overseas investors have to rely on Qualified Foreign Institutional Investor (QFII) and Renminbi QFII (RQFII) quotas to enter the $7 trillion market, which is the third-largest in the world.

"We have a few rounds of meetings with the regulators and they expect that all the final details will be issued in the next two weeks. What we've heard is that the overall application process will be very simple," said Carmen Ling, head of RMB solutions at the bank.

"The regulators are delegating due diligence or approvals to agent banks. As an agent bank, we need to do our proper due diligence to understand the invest pattern and size of our clients," said Ms Ling.

At present, there are 16 agent banks in China that can process cross-border bond investment for foreign investors, among which 12 are local banks. Standard Chartered is one of the four foreign agent banks.


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