The Bond Market of China: Innovation, Integration and Internationalization

Transcription

1 The Bond Market of China: Innovation, Integration and Internationalization By Ariel YANG Vice President CEO China Chengxin International Credit Rating Co., Ltd. China Chengxin (Asia Pacific) Credit Ratings Co., Ltd. For ACRAA Conference in Bahrain April 23, 2018

2 China Bond Market Overview Context New Developments and Trends China Bond Market Outlook

3 Part I China Bond Market Overview

4 Development of China Bond Market Primary Market Primary Market Rapid development of - Rapid corporate development bonds of corporate bonds Start of ABS - Start of ABS Opening up of IB market - Opening up of IB market Offshore RMB bond market - Offshore RMB bond market took took shape shape 二级市场 : 债券交易工具和规 Secondary Market: 则逐步放开, 交易规模迅速扩 - Gradual relaxation of bond 张 trading tools and regulations - Trade 监管 volume : 央行 / surged 交易商协会 发改委 证监会三足鼎立格局形 Regulators: 成 PBOC/NAFMII, NDRC, and CSRC became pillar regulators Formation of Market System Steady Development Primary Market - Stable growth of Gov. bonds - Expansion of policy bank bonds - Rapid growth of corporate bonds continues Secondary market - Bond trading/investment brisked up - Scopes of IB foreign investors and offshore issuers expanded Regulators New credit derivatives approved, but development was sluggish Regulations Tightening - Financial deleverage - Regulating local gov debt Integration of Regulators Product Innovations - Green bonds - Structured products Internationalization of Bond Market -Bond Connect -Belt & Road 2013 to date Rapid Development

5 Development of China Bond Market Till the end of 2017, the overall size of China bond market is trillion CNY (USD trillion equivalent), and takes up 90.3% of the 2017 China GDP. Outstanding Amount 11% Overall Size of Chinese Bond Market Trillion CNY 89% % 90.00% Inter-Bank Market % 70.00% Structure by Issuer % % 40.00% 30.00% 20.00% 2% 23% 18% 38% Bond Issuance Bond Issuance/GDP 10.00% 0.00% 19% Treasury&Policy Bank Bonds Local Government Bonds Financial Bonds ABS Corporate Issued Bonds

6 Regulators China Bond Market is comprised of inter-bank market and exchange market, different types of bonds are accounted for different regulations and issuing processes. Inter-Bank Market Exchange Market Types Regulators Types Regulators Treasury bonds Municipal Treasury PBOC Treasury bonds Municipal Treasury PBOC CSRC Policy Bank Debt PBOC Policy Bank Debt PBOC CSRC Enterprise Bonds Project Income Bonds Collection Bonds PBOC NDRC Enterprise Bonds Project Income Bonds Collection Bonds Renewable Debts PBOC NDRC CSRC SCP&CP MTN Perpetual Notes Collection Notes NAFMII Corporate Bonds CSRC PPN NAFMII Non-public Corporate Debts/SME private placement bonds Exchange/CSRC Security Company CP PBOC/NAFMII SCRC Security Company Short-term Bonds CSRC/SAC Credit ABS PBOC CBRC Exchange Securitized Products CSRC/Exchange Commercial Bank Normal & Subordinated Debts PBOC CBRC Security Company Subordinated Debts CSRC

7 Investors Commercial banks are the major investors, holding over half of the outstanding bonds; however, in recent years, the share of commercial banks is declining due to rising proportion of other investors, especially fund investors % 60.00% Investors in Chinese Bond Market 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% Sep.2017

8 Rating Business The rating industry has entered into a steady growth since 2011 with the rapid expansion of the bond market. From July 16 th 2017, the industry has been opened to foreign institutions Rating Business in Inter-bank Market 内资 Domestic investment 外商合资 Foreign joint venture Rated Issues Rated Issuers

9 Rating Business CCX CCX CCX CCXI s Market Position Top in accumulated market share for each service category Clients in more than 20 industries Market Share of CP (counted in number) others others others Market Share of MTN (counted in number) Market Share of Panda Bonds (counted in number) CCX CCX CCX others others others Market Share of Financial Bonds (counted in number) Market Share of Corpora Bond Products (counted in number) Market Share of ABS (counted in number)

10 Part II New Developments and Trends

11 Tightening Financial Policy & Regulator Integration Financial Deleveraging Local Government Debt Regulation Regulation Integration % Growth of M2 decreased significantly M2: 同比 YoY M2/GDP Financial deleveraging mitigated the over expansion of financial system. The trends of debt/gdp in each sector are mixed 167% 167% Non-financial corporates 50% 53% 50% 49% Residents H1 Government The growth of SOE debt and local government debt are strictly controlled. Financial Stability and Development Committee of State Council PBOC CBIRC CSRC NDRC NAFMII China is promoting the financial regulation integration : Circular on Standardizing the Investment and Financing of Financial Enterprises to Local Governments and Stateowned Enterprises : Circular on Local Government Debt Management in 2018

12 Innovations of Bond Products Structured Products Issuance Volume of Corporate ABS RMB/ billion 160 Inter-Bank Market: Financial Institutional ABS, ABN Exchange Market: Corporate ABS, REITS

13 Innovations of Bond Products Green Bond Issuance Volume of Green Bond After setting the world s record in 2016, Chinese Green Bond issuance surged to USD37.1 billion in 2017, and China has grew into one of the world s largest Green Bond market since USD/ 100 million NDRC: Guidance on Green Bond Issuance State Council: Guidance on the Construction of Green Financial System State Council: Setting up Green Financial Reform and Innovation Pilot Areas in five provinces including Zhejiang, Jiangxi, Guangdong, Guizhou, and Xinjiang. Issued in other countries (Comply with International Green Bond Definition) Issued in China (Comply with International Green Bond Definition and Chinese Green Bond Definition) Issued in China (Comply with Chinese Green Bond Definition)

14 Defaults Annual Default Rate - Till 2017 Q3, the accumulated number of default issuers is 63, and the amount of default bonds is RMB55.2 billion. - The default rate peaked in 2016 with the slow down of GDP growth. - The credit ratings of issuers are concentrated above AA due to regulation requirements and market competition. 8.00% 7.90% 7.80% 7.80% 7.60% 7.40% 7.20% 7.00% 6.80% 6.60% 6.40% 6.20% 6.00% 0.20% 0.04% 7.30% 6.90% 0.07% 0.46% 6.70% 0.90% 6.90% 0.39% Q3 1.00% 0.90% 0.80% 0.70% 0.60% 0.50% 0.40% 0.30% 0.20% 0.10% 0.00% GDP 增速 growth rate rate of GDP 年违约率 Annual Annual default default rate (right rate( axis) 右轴 Right axis)

15 Internationalization of Bond Market The process of internationalization of Inter-bank Bond market started in 2010, and has accelerated since Sep 2010 Fund raised by international development institutions through RMB bond issuance can be used abroad by remittance; RMB transferred from abroad can also be used in capital and interest repayment. Jul 2015 Amount limitation on Foreign Central Banks, International Financial Organizations and Sovereign Wealth Funds has been cancelled, investment range from cash bond to bond repurchase, lending, forward, interest rate swap and forward rate agreement, etc.. Aug 2015 Further loosen the requirements on the range of issuer, usage of funds and rating for Panda bond Aug 2010 Foreign central banks Clearing banks for RMB business in Hong Kong and Macau Overseas participating banks Issue Invest Mar 2013 QFII was approved to invest in interbank bond market. Jun 2015 Clearing banks and participating banks which allowed to enter the interbank bond market can conduct repurchases transactions- pledged repo and outright repo. Feb 2016 Widen the range of foreign institutions in interbank bond market, including legally registered and formed abroad financial institutions

16 Internationalization of Bond Market Issuer Panda Bond Belt & Road Bond Chinese Dollar Bond Dim Sum Bond On-shore Off-shore QFII RQFII Foreign central banks, International financial organizations, Sovereign wealth funds Bond Connect Investor More Chinesebackground investors participate in the offshore dollar bond market

17 Internationalization of Bond Market Bond Connect Bond Connect is a new mutual market access scheme that allows investors from Mainland China and overseas to trade in each other's bond markets through connection between the related Mainland and Hong Kong financial infrastructure institutions. Northbound Trading commenced on 3 July 2017, allowing overseas investors from Hong Kong and other regions to invest in the China interbank bond market through mutual access arrangements in respect of trading, custody and settlement. Southbound Trading will be explored at a later stage. Issuers Helping to accelerate the development of Panda bond market. First Panda bond under the Bond Connect: Malayan Banking Investors Providing a new trading channel for the offshore investors to participate in the Chinese domestic bond market. Stimulating foreign institution s investment by reducing the trading cost.

18 Internationalization of Bond Market Onshore - Panda Bond Inter-bank Market Exchange Market Total Global Scale Local Scale Panda Bond Issuance (RMB/billion) CCX s Rating Scale to 2014: Panda Bond issuers were limited to development financing institutions : no limits on the type of issuers who can issue Panda Bonds. The Panda Bond market is entering a phase of rapid development : issue volume surged to billion Yuan (915.7% increase YoY); issuers become further diversified, with the majority of them being Chinese-funded red chip companies : issuing downsized sharply compared with 2016 due to rising interest rate and limited financing of real estate industry in China.

19 Internationalization of Bond Market Off shore - Chinese Dollar Bond - Dim Sum Bond : foreign bonds mainly offered by Chinese government agencies, financial institutions, and SOEs : Chinese enterprises foreign borrowings scaled up thanks to the QE policy and the low-interest rate environment in Europe and the US Issuance Volume(USD/Billion)(left No. of Issuance(right axis) : related financing policies are gradually relaxed, and the overseas financing mechanism of Chinese enterprises is improved : Overseas debt issuing by Chinese enterprises ushered in a peak, with the majority of which are US dollar bonds. Chinese Dollar Bond Issuance

20 Part III China Bond Market Outlook

21 China Bond Market Outlook Issuance of credit debt is expected to bounce back, the yield of bond may fluctuate in high-order. Due to strict financial policy and steady but tight monetary policy, the fluctuation of secondary market will be more frequent, and the yield rate of bond will be under pressure. The credit risk of 2018 may accelerate with the economic growth slowing down and stricter financial supervision. Cross-border bond markets will further expand with the promotion of the B&R. Chinese green bond market has great development potential.

22 Contacts Ms. Ariel YANG Vice President, CCXI Chief Executive Officer, CCXAP T: (852) M: (86) Ms. Rong TIAN Managing Director, CCXAP T: (852) M: (86) Ms. Christine ZHANG Vice General Manager, Overseas Business Dept., CCXI T: (86) M: (86)

23 About CCX CCX CCXAP

24 Thank You!