Opening-up key priority in ongoing financial reforms

New rules seek to eliminate long-standing cross-border funding obstacles

Regulators are determined to accelerate financial opening-up amid attempts to boost the value of yuan-denominated assets and attract offshore funds by removing long-existing cross-border funding obstacles.

As the country's top-level policymakers have proposed a new development pattern featuring "dual circulation"－which takes the domestic market as its mainstay, with domestic and foreign markets connecting and supporting each other－financial opening-up and structural reforms will be further promoted to support the development strategy, experts said.

Regulators recently targeted a further opening of the country's 109 trillion yuan ($16 trillion) bond market, the world's second largest. Earlier this month, the central bank and the regulators of the securities and foreign exchange sectors jointly issued a set of new rules that allow foreign institutional investors to directly enter the onshore bond exchange market, or invest through Bond Connect programs.

It marks the first time that foreign investors are able to purchase exchange-traded bonds in China. Previously, regulators only approved overseas funds that were injected into the interbank bond market, a reform that began a decade ago.

Fang Xinghai, vice-chairman of the China Securities Regulatory Commission, said earlier this month that China will soon release revised policies for foreign investors injecting capital into the onshore stock and bond markets, and broaden connect programs between onshore and offshore markets.

These new measures will encourage foreign investors to increase their holdings of yuan-denominated financial assets, Fang said.

The CSRC said that in the first eight months of this year, net inflows of foreign capital stood at 126.5 billion yuan through stock and bond connect programs. In July alone, foreign institutions increased investment in treasuries and bonds issued by policy banks to 146.26 billion yuan, a record high.

Foreign investors held 2.46 trillion yuan of Chinese bonds onshore at the end of August, up by 5.03 percent compared with July. This is the 21st consecutive month that foreign institutional investors increased their bond purchases, the central bank said.

This will encourage Chinese financial regulators to further expand financial products, including exchange-traded funds, commodities futures products and risk management instruments for foreign institutions, Fang said.

From 2015 to 2017, foreign investors mainly used the qualified foreign institutional investor platform to inject funds into the bond market, but the investment scale was limited by an annual quota and complicated administrative approval procedures, analysts said.

Last year, the People's Bank of China, the central bank, announced a removal of the ceiling on quotas for foreign investors to buy stocks and bonds under the QFII scheme. Later, the same policy was offered for the yuan-denominated version, or the renminbi qualified foreign institutional investor policy.