China expands onshore repo access in push to boost yuan assets
Authorities have been stepping up efforts to promote the country’s debt and currency markets
[HONG KONG] China is expanding access to its bond repurchase market, a move that may encourage global investors to increase their holdings of yuan-denominated assets.
Eligible overseas institutional investors, including foreign central banks, sovereign wealth funds, commercial banks and insurers, can now conduct bond repurchase transactions in China’s onshore market, according to a notice on Friday (Sep 26) from the People’s Bank of China (PBOC), the China Securities Regulatory Commission, and the State Administration of Foreign Exchange.
Other types of investors also now eligible are securities and fund managers and long-term investors such as pension funds. The rules also apply to institutional investors from Hong Kong, Macau and Taiwan, and take effect immediately, the regulators said.
Foreign investors have been able to participate in the repo market on a limited basis through a programme in Hong Kong, called Bond Connect. The latest development marks a step-up in Beijing’s efforts to position the yuan as a global reserve currency and boost liquidity onshore. The changes, which the central bank telegraphed last year, is unfolding against the backdrop of the US Federal Reserve’s easing cycle and lingering uncertainty over US President Donald Trump’s tariff policies.
The regulators’ latest move will allow foreign investors to tap into a deeper pool of onshore yuan liquidity through repo contracts, short-term agreements where bonds are sold with a commitment to repurchase them later. China’s pledged repo system has operated differently from global norms, with collateral bonds frozen under the seller’s account rather than transferred, the regulators said. Under the new model, regulators are aligning with international standards by offering clearer rights and easier default handling, they said.
A 12-month transition period will allow existing participants to continue using the old model. China’s repo market includes both pledged repos and outright transactions. The monthly trading volume of pledged repos averaged 131.2 trillion yuan (S$24 trillion) as at July, according to the PBOC.
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“These developments mark an important step in the ongoing reforms to deepen China’s capital markets and to enhance opportunities for all market participants,” said Oliver Tinkler, spokesperson for the International Capital Market Association, in a separate statement.
Hong Kong connect
Authorities have been stepping up efforts to promote China’s debt and currency markets.
PBOC deputy governor Zou Lan said this week that China will support international institutional investors in conducting bond repurchase business to improve the efficiency of using yuan-denominated bonds. The central bank will also accelerate the launch of government bond futures in Hong Kong and increase the daily net trading limit on the swap connect link, he said.
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Officials have a broader blueprint to position Hong Kong as an offshore hub for bond market liberalisation and yuan internationalisation.
To boost the appeal of Chinese bonds, authorities in February launched a repo service under Bond Connect, allowing select global investors to use notes purchased via the trading link as collateral for offshore liquidity.
The Hong Kong Monetary Authority enhanced the programme in July, enabling settlement in currencies beyond the yuan. BLOOMBERG
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