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Special Report: China’s Bond Markets – The Start of a Golden Age

By Standard Chartered Bank

Summary

China’s onshore bond market is now the world’s third largest, and its credit market has become the second largest. We expect the market to more than double to CNY 100-105tn by end-2020 (from CNY 48tn at end-2015), rising to c.100% from 62% of nominal GDP.

We see strong supply during the 2016-20 period, boosted by local government debt swaps, a likely wider budget deficit, the transition of China’s credit extension model from loans to bonds, and the significant relaxation of regulations on credit bond issuance in 2015.

We expect strong demand. Asset managers could become much larger holders, driven by the centralisation of pension investments and fast growth in the mutual fund and insurance industries amid China’s growing wealth and ageing population. Banks’ holdings are likely to decline. We expect foreign ownership to rise sharply following the interbank bond market liberalisation, to 4-7% by 2020.

We provide a detailed analysis of the supply outlook for each bond type, and the outlook for demand from banks, pension funds, mutual funds, insurers and foreign investors. We summarise key regulatory changes and discuss on- and offshore FX and rates hedging options.

Please click here for the full report.

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