27 April 2016

King & Wood Mallesons launches joint report on Cross-Border RMB Market

ASIFMA, J.P. Morgan, and King & Wood Mallesons today jointly published a report on “Access Programs and Reforms in the Cross-Border RMB Market”, highlighting the channels that are available and new initiatives that are underway in the cross-border RMB market.

“We have seen impressive reforms in the cross-border RMB market. Following RMB being included in the SDR basket last year, the recent CIBM reform has removed individual investment quotas and opened up the market to nearly all international financial institutions. However, this is only one of many programs granting access to the Chinese capital markets and a multitude of access channels can, at times, confound foreign investors. We think this is the most opportune time to launch a paper which neatly recaps all of the existing access programmes in the cross-border market to provide a full picture, and make some observations about possible new channels or trends that are likely to follow,” said Patrick Pang, Managing Director and Head of Fixed Income at ASIFMA.

“The most interesting aspect of this ASIFMA paper is the need to keep apace with the rapid development of the RMB internationalisation process. The speed at which this market develops makes it incredibly challenging (and fascinating) to ensure that we capture all of the latest positions and developments in each of the various access channels to the onshore RMB market.” Minny Siu, Partner, King & Wood Mallesons.

In addition to providing an overview of the existing inbound and outbound channels in the cross-border RMB market, the report identifies the key programs and reforms that potentially may have a major impact on the market. It also elaborates the potential implications of these new initiatives and the challenges and opportunities for investors.

“As China progresses further to deepen its financial reforms, we are anticipating more channels will be available in line with its capital markets opening. The overarching scheme, as elaborated in the various programs in this report, is that we expect that direct financing to play an increasingly vital role in serving China’s evolving financial needs of its real economy,” said Jennifer Jiang, head of global RMB solutions at J.P. Morgan.

China is gradually moving forward its capital market opening with more initiatives implemented in the stock as well as bond and forex market.

In February 2016, PBoC opened the Chinese interbank bond market (CIBM) to most types of overseas financial institutions, who will no longer need to apply for quotas to invest in this market, a significant step to allow foreign financial institutions unlimited access to the world’s third-largest bond market.

“The opening up of CIBM is truly a game changer, attracting increasing interests from global investors; and at the same time, the development of Chinese panda bond market is also drawing increasing attention from global issuers into this market. All these progresses are endorsing the fact that Chinese bond market is accelerating the integration with global capital market.” Jennifer Jiang of J.P. Morgan added.

“We believe the reforms and opening up of China’s capital markets are set to continue. Global investors will be offered more opportunities to access China, especially the rapidly growing bond market with generally higher yields than their home markets. Also, with more cross-border channels, Chinese investors can better familiarise themselves with international markets and their practices in comparison to global standards, some of which ultimately need to be imported into China as their market evolves and grows. We foresee deeper integration of China’s market with the global financial system and the integration itself is indeed a mutually beneficial process,” Patrick Pang of ASIFMA added.

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