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China allows more foreign investment in domestic bond market

China has given approval to an additional 32 foreign firms to invest in its domestic bond market.06 May 2015

Eleven QFIIs (qualified foreign institutional investors), 11 RQFIIs (RMB qualified foreign institutional investors) and ten offshore institutions with qualifications allowing RMB settlement have been granted access to the interbank bond market where 95% of domestic bonds are traded, said Shanghai-based Leo Wang of Pinsent Masons, the law firm behind Out-Law.com.

The 32 firms include HSBC, Morgan Stanley, Société Générale, BNP Paribas and ING Bank, the Financial Times has reported.

The interbank bond market was not open to offshore institutions until 2005 when two offshore funds were approved to invest, Wang said.

In 2010 overseas central banks or currency authorities, RMB clearing banks in Hong Kong and Macao regions, and overseas banks involved in RMB settlement in cross-border trades were permitted to invest RMB funds in the market, Wang said.

The first 18 RQFIIs were approved to invest in the interbank bond market in 2012, and in 2013 the people's Bank of China issued rules allowing QFIIs to apply for approval.

Both the new approvals and previous QFII and RQFII permissions come with undisclosed caps on the amount that can be invested, the Financial Times said. 

"In general, the openness of the interbank bond market is relatively slow. Offshore institutions actually participating in the interbank bond market are few. In addition, bond repo, interest rate swaps, and treasure bond futures markets are yet to be opened to offshore capital," Wang said.