(China Alert) China RMB fixed income: USD7tr to be tapped

·IBB license approval continues to grow for foreign managers
·A mismatch between investor demand and manager supply exists
·This mismatch is set to grow significantly for the foreseeable future

Update: China’s RMB45tr (USD7tr) fixed income market is continuing to steam ahead. Licenses to the interbank bond market (IBB), which makes up over 90% of the entire onshore RMB credit market, continue to be granted to RQFIIs and QFIIs. This comes at a time when the current mismatch between RMB debt management demand and supply is set to expand. The RMB’s inclusion into the IMF’s Special Drawing Rights (SDR) currency basket (to be announced this month) will be a defining moment for the currency and onshore debt market alike. What’s more, the RMB surpassed the Japanese Yen in August for global currency flows. Broad movement from global managers to capture this increased demand is only just beginning and the gap caused by a current lack of participation presents an opportunity that shouldn’t be ignored.

PBoC is opening the door to the fixed income market for foreign participants. In the past year 44 IBB licenses have been granted to RQFII and QFII participants. Currently, an RQFII or QFII license is required before a separate application for an IBB license and quota can be made to PBoC. As we predicted in June…

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