News from Asia and the Pacific

IMF Editors Share Insights of New Book on Prospects of Chinese Bond Market

July 17, 2019, Tokyo – Presenting key findings from the IMF’s recent book on Chinese bond market and its prospects, IMF’s China experts said today at a public seminar in Tokyo that China’s bond market will play an increasingly important role in the future.

Two main contributing writers and editors of “The Future of China’s Bond Market”, Mr. Alfred Schipke and Ms. Longmei Zhang, flew to Japan to introduce their new book to an audience in Tokyo, as part of their global outreach. The two are experts on China’s economy currently based in Beijing: Mr. Schipke leads the IMF’s resident office for China as senior resident representative and Ms. Zhang supports its operations as his deputy.

Mr. Schipke first presented an overview of the current status of the bond market in China. He said that China’s bond market is destined to play an increasingly important role, both domestically and globally. He emphasized that the recent inclusion of the country’s bonds in the global index will be a millstone for its financial integration, bringing big opportunities as well as challenges for policymakers and investors alike. He also mentioned that bonds issued by so-called local government financing vehicles (LGFVs)  surged following the global financial crisis and China’s large stimulus package. LGFVs are enterprises set up by local governments to raise funds, as most local governments in China were forbidden to borrow money directly. He mentioned that more recently the government has tightened regulations to break the perceived link between local governments and LGFVs.

Looking ahead, Mr. Schipke noted that China’s bond market has a great potential. He cited that the Chinese government announced to further develop and open the market and that  foreign investors are increasingly interested in the market because of the government’s efforts in financial inclusion as evidenced by the recent inclusion of policy bank bonds in a global index.

Ms. Zhang then provided more detailed information about China’s credit bonds, recent development, and reforms.  In her takeaways, she highlighted that foreign investors still mention tax uncertainties and the lack of clarity about rules as obstacles.  To further develop the bond market, she said that it will be important to  foster secondary market liquidity and to  remove implicit guarantees.  Moving forward with these reforms will ensure a bright future for China’s bond market, she noted.

Following the presentation on the book, Ms. Junko Koeda, Chief Economist of the Finance Ministry’s Policy Research institute, casted some comments from the analytical viewpoints, and posed questions on the linkage between macro factors and bond risks.

The seminar was held as part of the IMF’s Economic Issues Seminars, a series of public seminars hosted by the IMF’s Regional Office for Asia and the Pacific to share its work with wider audiences. The topic attracted more than 100 people from both public and private sectors, including financial officials, economists, market analysts and journalists.

During the Q&A session, participants engaged with the speakers. Some shared their concerns about the existence of two types of bonds - local government bonds and local state-owned enterprise bonds – and the need for tightening of regulations on the enterprise bonds. Others commented on the effects of China’s financial sector integration into the global financial market and the evaluation of the China’s current disclosure standard against the global one.

The book is available online and downloadable from the IMF website. Its Japanese version is expected to be published next Spring by the Japan Securities Research Institute.