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Our chart this week shows the five largest bond markets in the world. We will focus on China and highlight a few reasons why the Chinese bond market is projected to overtake Japan in the next few years.
For starters, up until last year capital controls put in place by the Chinese government were designed to limit foreign investment. As a result of some newly implemented reforms since then, international investors have slowly been allowed direct access to the Chinese domestic bond market. For example, on July 3, 2017 Beijing and Hong Kong opened a trading link which will allow investors based in Hong Kong to trade directly in the Chinese bond market.
Additionally, in March Citigroup announced the inclusion of Chinese onshore bonds in several of its market indices and more recently Bloomberg announced similar plans. Inclusion in multiple market indices will aid in growth while increasing foreign investment.
Finally, new rules recently implemented in China require the country’s 22 provinces to borrow in the local government bond market instead of seeking out bank financing which had previously been the preferred route. This change should also contribute positively to the continued expansion of China’s bond market and will offer greater access to more investors.
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