2017 International Monetary Forum·Theme 3: Internationalization of Bond Market: Opportunities and Challenges
2017-07-16 IMI
Ma Delun, chairman of Banking Accounting Society of China and the former deputy governor of PBoC, and the chairman of Shanghai Stock Exchange Wu Qing delivered keynote speeches.
Ma Delun mentioned in his speech about the great changes and developments in bond market—expanded market size, increasingly wide range of bond products, upgraded infrastructure, more diverse investors and further opened markets. With advanced system, the Chinese bond market received wider international recognition. According to Ma, RMB internationalization requires more RMB-denominated financial products and the internationalization of the bond market is an inevitable trend. The internationalization of the bond market has led to a new channel for cross-border capital flows, which is conducive to the bi-phase equilibrium of the balance of payments. However, how to maintain a stable monetary environment and further improve the monetary control still faces new challenges. He stressed that the finance itself is not an end, but should serve the financial services industry and the real economy.
Wu Qing deems that the internationalization of the bond market is an important component of China's opening up process. Without the internationalization of the bond market, it is difficult to achieve the RMB internationalization. Improving the financing mechanism of RMB, the pricing benchmark and risk management tools are important channels to promote the internationalization of the RMB. He pointed out that currently opportunities and challenges co-exist in in the internationalization process of China's bond market. On the one hand, in recent years the bond market developed fast, the market size ranking third in the world— second only to the United States and Japan. At the same time, China's bond market is young with features of emerging market and transition period, so both the system and the market itself need to be further improved. The China’s bond market internationalization is still far from that of the developed countries. He stressed that Belt and Road Initiative is an important opportunity. We should stick to strengthen the bond market, constantly improve related mechanisms, promote the internationalization of the SSE bond market, attract foreign investors to invest in the SSE bond market; promote the international concept of green development, build a green financial system and explore multi –channel cooperation methods with foreign bond markets.
The first roundtable discussion centred on "Development of Internationalization of China’s Bond Market", chaired by Managing Director and Head of Fixed Income of Huatai United Securities Wang Ge. The speakers are: Wang Guogang, Director of Finance Institute of CASS; Bu Yanhong, Vice General Manager of Asset Management for Postal Savings Bank of China; Mao Zhenhua, Board Director and Founder of China Chengxin Credit Management Co.; Wang Changyun, Executive Associate Dean of Hanqing Advanced Institute of Economics and Finance, RUC; Wang Qing, President, Shanghai Chongyang Investment Co., Ltd.
In his speech, Wang Guogang put forward two problems of the bond market in China. In his view, the deleveraging of entity enterprises should adjust the debt structure; adopt long-term liabilities to replace current liabilities, making full use of the bond market to solve the financing problem in China. At the same time, he proposed that China's interest rate market has not yet completed marketization; the main investors in the market lack the right to choose; external pricing system is not complete; the investment channels and investment products for urban and rural residents are still scarce. He stressed that the bond market is largely intangible; China should focus more on the development of the intangible market.
Bu Yanhong analyzed from the microeconomic aspect—the engagement agencies of the bond market. She pointed out that China changed from the international export power and trade power to the main force to promote the economic globalization. Along with the domestic economic restructuring and development, the opening of the financial market and the bond market is overwhelming. At present, in the total size of the three trillion, green bonds, debenture bonds and asset securitization products flourished; the non-standard transfer process further promotes the expansion of the bond market, which is the result promoted by the regulatory body, rating agencies and intermediaries. At the same time, the infrastructure of domestic bonds is still weak with the following problems: there are shortcomings in the market segmentation, market supervision and so on; the soft budget constraint disturbs the normal bond yield curve; the liquidity of the bond is not active and the interest rate derivative tools are not advanced. She believes that the domestic bond rating agencies and intermediaries should bear more responsibilities and obligations.
Mao Zhenhua proposed that China's rating and credit industry is fully open and no longer on the control list of foreign investment, which has a far-reaching impact for the entire market. He stressed that anti-risk goes firstly from the regulations—regulators should enhance the ability to monitor to and strengthen the financial infrastructure construction in the globalized background. The infrastructure doesn’t only include the information superhighway and the clearing and settlement system, but more importantly the thinking and action of regulators, regulators and supervisors.
Wang Changyun’s speech focused on the opening of the capital market in the RMB internationalization process. He pointed out that the opening of the capital market varies from different the economic and social development stage of different countries, cultural and legal environment, but the truth is to adhere to the direction and principles of marketization. The opening of the capital market is an important symbol of the internationalization of the currency, which is conducive to enhancing the scale and depth of the offshore RMB market and opening the RMB backflow channel for the internationalization of the RMB. He stressed that we should see clearly the problems in the capital market, accelerate the pace of market-oriented reform and expand the share of the bond market.
Wang Qing analysed in the macro level the "exchange rate, interest rates and prospects of securities market”. He suggested that the interest rate of RMB remained relatively stable by the end of 2016in order to achieve the orderly, controlled and gradual process of the RMB devaluation. As Trump was elected president of the United States and the financial deleveraging proceeded by the PBoC, CBRC, CSRC and CIRC, the bond market began to undergo major changes accordingly. But this unstable situation is unsustainable, and in the future, the downward trend of interest rate liquidity may form a time window, making a more favourable financial environment for the capital market and bond market. He believes that the recent introduction of the bond is an important and promising reform way, and will have a significant influence on the opening of China's bond market and the internationalization of the RMB.
The second roundtable discussion focuses on "Internationalization of the Market and Institutional Business", chaired by Xia Le, Chief Economist for Asia, Research Department, BBVA. The speakers are: Fan Xiwen, Chief Risk Officer, China-LAC Cooperation Fund; Li Yu, General Manager of Financial Market, China Guangfa Bank; Guan Mingjia, Managing Director of First Capital; Qu Qing, General Manager, Asset Management Division, Hua Chuang Securities and Chief Analyst, Hua Chuang Bonds; Wang Wei, Director of Fixed Income Research, BOC International.
Fan Xiwen thought that the opening of bond market and capital market is very challenging. On the one hand, opening up exposed a country's capital outsourcing risk and problems of capital flight, soaring prices, loss of foreign reserves and other issues especially during an economic crisis, leading to further deterioration of the economy; On the other hand, overseas capital that flows into the Chinese credit market requires much more from the credit bonds, issuers and other related legal mechanisms, legal environment and market supervision. He proposed that China urgently needs to establish a syndicated loan market, improve communication with overseas investors, improve relevant laws and regulations, and enhance the overall self-confidence of the country.
Li Yu believes that domestically, the currency is the will of the country and internationally is the national interest. RMB internationalization needs a financial market that includes the US dollar, the euro and other foreign currencies. And we should increase the diversification of market participants and make it more attractive to global capital. He pointed out that the RMB interest rate bonds reflect the relationship between national credit and sovereign credit. China's credit bonds is more open and standardized in the approval of the issue, but there are the emergence of bankruptcy and other issues after the crises. Management authorities need to improve the relevant laws and regulations and regulatory procedures to achieve bilateral recognition with the foreign judicial departments. At the same time, in the process of expanding the internationalization of currency, we also need to consider the impact of digital currency on personal privacy.
Guan Mingjia shared his thoughts from the micro-operation of securities companies. He argues that bond transactions are inseparable from basic service facilities. Compared with the domestic banks and exchanges, the bond market failed to form a market-oriented transaction way, mainly because of the lack of bond market functions and products. He suggested that foreign pension funds could be introduced during the opening of the bond market to provide more support for the offer of the bonds. At the same time, we should improve the market service facilities to help overseas investors access to the market more quickly and have better investment options.
Qu Qing believes that in the long run, the demand of foreign markets for China's bond market is very large. However, in the short term, China's financial institutions still need to improve the market-oriented bidding system, improve the ability to resist credit risk, standardize the institutional rating mechanism and improve the independence of the Chinese currency, so as to establish a sounder bond market and attract foreign investors to enter.
Wang Wei said in his speech, in recent years, China's direct financing market develops very fast and the opening of China's capital market has never stopped. He highly appreciates the openness of the Chinese government over the past few years and has full confidence in the future of the RMB internationalization. But he also suggested that the imperfect system of information regulation in China is an important reason for foreign investors hesitating of entering the Chinese market. China needs to further enhance the transparency and concentration of the bond market and improve the influence of Chinese-funded institutions abroad.
After the discussion of the theme, guests talked freely about the investment channels, derivatives in the bond market ,the impact and the development of the Bond Connect and other issues.
