China's Financial Markets Liberalisation

Financial institutions of all sizes are assessing China’s long-term outlook as the country accelerates the opening up of its capital markets. A crucial area of change is the growing number of channels for foreign entities to access the market. Coupled with supportive regulation to broaden existing initiatives such as panda bond issuance – which are Renminbi (RMB)-denominated bonds from a foreign issuer – and the various Connect schemes, changes are underway to drive interest in China.

At our recent HSBC Financial Institutions Conference – A world of opportunity in a new financial era, we brought together speakers to discuss a range of topics related to the changes happening in China’s financial market landscape, including:

Increasing access through structural reforms

New schemes are making China’s capital markets more attractive to foreign investors, a long-term trend with strong momentum across various financial instruments.

• China’s regulators continue to improve the avenues of access to the country’s financial markets.
• Internal investors are seeing new market opportunities around derivatives and bonds.
• A wide range of channels are available to investors of all sizes looking to access China’s financial markets, including:
  - QFII and CIBM Direct schemes, which enable foreign institutional investors to invest in securities and futures, as well as bonds respectively. Participation has swelled over the years, with foreign ownership of onshore stocks and bonds between 2014 to late 2020 seeing a near eight times increase to RMB5.7 trillion (USD837 billion).¹
  - Stock, Bond and the newly launched Swap Connect, designed to streamline investors’ access to the country’s onshore capital markets. In January 2023 alone, net foreign purchases of Chinese A-shares in Shanghai and Shenzhen via the Stock Connect increased to RMB141 billion (USD19.8 billion), double the equivalent period in 2022.²
• Expanding access to commodity futures will be a key to the further participation of international investors in China’s financial markets.

Investors are benefitting from a more attractive and dynamic funding environment, with opportunities flowing from market reforms and greater access to the country’s bond market.

• The existing framework for panda bond issuance has been enhanced to enable proceeds raised to be taken offshore, in a move that has made the market increasingly attractive to potential issuers.
• The reopening of China’s bond market and the internationalisation of the RMB have been key to the acceleration of panda bond activity, the market volume having reached an impressive USD10.4bn as of June 2023.³
• Competitive pricing opportunities are arising for international investors, with lower interest rates making funding through panda bonds notably cheaper than alternative options.⁴
• Green panda bonds are also an option for investors looking for sustainable financing opportunities.

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