PBOC relaxes the rules to open up the Interbank Bond Market to new investors

Written by Mei-Lan Yang || May 2016

On May 6th, the People’s Bank of China (PBOC) changed its policy for investors in the interbank bond market. These modified regulations will open up the market to new types of investors including asset managers, housing provident funds, pension funds and charities.

20160524 PBOC

This move is not completely without precendent. In 2014, the central bank had already started easing restrictions on investors entering this particular market and as many as 16 banks received permission to open separate bond accounts for wealth management products. But according to a research report from Guotai Junan Securities Co. Ltd., this type of investment product wasn’t that popular at that time, as the total bond value only reached 640.4 billion Yuan.

One of the main reasons for opening up the market to a wider-range of investors is to eliminate the use of intermediary parties for bond-related transactions. Intermediaries reduced transparency, especially in the wealth management industry where underlying investments were often unclear.

For new investors, it’s clear that investment opportunities have grown. Previously, only those 16 listed banks were allowed to sell wealth management products like independent institutional investors, so investment was limited. Now, all banks can participate, which is a boon for banks themselves. Not only are they allowed to possess an independent account in the interbank bond market, but they are also able to participate directly in bank wealth management products, charities, and different types of funds. 

Although the opening up of the market is a positive, it also needs to be treated with a bit of caution. The government had been pushing to re-start the lagging stock market, but this may end up doing the exact opposite as investment moves towards bonds. 

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