China lures foreign debt buyers despite corporate default fears
Skip to main content
  • Home
  • Economy
  • Stocks
  • Analysis
  • World+Biz
  • Sports
  • Splash
  • Features
  • Videos
  • Long Read
  • Games
  • Epaper
  • More
    • COVID-19
    • Bangladesh
    • Infograph
    • Interviews
    • Offbeat
    • Thoughts
    • Podcast
    • Quiz
    • Tech
    • Subscribe
    • Archive
    • Trial By Trivia
    • Magazine
    • Supplement
  • বাংলা
The Business Standard
THURSDAY, MAY 26, 2022
THURSDAY, MAY 26, 2022
  • Home
  • Economy
  • Stocks
  • Analysis
  • World+Biz
  • Sports
  • Splash
  • Features
  • Videos
  • Long Read
  • Games
  • Epaper
  • More
    • COVID-19
    • Bangladesh
    • Infograph
    • Interviews
    • Offbeat
    • Thoughts
    • Podcast
    • Quiz
    • Tech
    • Subscribe
    • Archive
    • Trial By Trivia
    • Magazine
    • Supplement
  • বাংলা
China lures foreign debt buyers despite corporate default fears

Global Economy

TBS Report
31 May, 2021, 07:25 pm
Last modified: 31 May, 2021, 07:28 pm

Related News

  • China, Australia foreign ministers vie for influence with Pacific visits
  • Shanghai heading out of lockdown but China still lost in economic gloom
  • China will give cash subsidies to airlines for two months
  • Global automakers face electric shock in China
  • China seeks Pacific islands policing, security cooperation - document

China lures foreign debt buyers despite corporate default fears

Attracting increasing attention are bonds issued by Chinese "policy banks," which channel public funds to areas such as trade, infrastructure and agriculture

TBS Report
31 May, 2021, 07:25 pm
Last modified: 31 May, 2021, 07:28 pm
People ride elevators at a newly opened shopping mall in Beijing, China April 16, 2021. REUTERS/Tingshu Wang
People ride elevators at a newly opened shopping mall in Beijing, China April 16, 2021. REUTERS/Tingshu Wang

Global investors are warming to Chinese bonds after a temporary sell-off and are looking at safer alternatives beyond sovereign debt to tap higher yields and boost returns.

Attracting increasing attention are bonds issued by Chinese "policy banks," which channel public funds to areas such as trade, infrastructure and agriculture, reports the Nikkei.

The banks in question -- China Development Bank, the Agricultural Development Bank of China and the Export-Import Bank of China -- are state-owned and viewed as offering a quasi-sovereign low level of risk, while still offering higher yields than bonds issued directly by the Chinese government.

Several fund managers told Nikkei Asia that they believe foreign ownership of China policy bank bonds will double in the next few years, having topped $156 billion for the first time in April.

"Foreign investors are now comfortable with Chinese government bonds and are now creeping down the curve to policy bank bonds. It is an evolution of the risk appetite," said Jason Pang, a Hong Kong-based portfolio manager at JP Morgan Asset Management.

Global investors are expected to boost their holdings in China's bond market, the world's second-largest, as the nation opens up and it is added to more global bond indices. China's inclusion in the FTSE World Government Bond Index, set to begin from October, is alone set to drive as much as $150 billion in passive money flows, according to analysts.

On offer are higher yields compared with US bonds. For example, China's benchmark 10-year bonds yield 3.089% versus 1.576% for their US peers.

Yields on bonds from the policy banks are higher by another 50-60 basis points, despite a similar credit rating of A1 or A+ from international credit rating agencies. They "offer a free lunch for investors due to the yield pick-up," said Yii Hui Wong a senior portfolio manager at Nikko Asset Management.

Chinese debt has been in focus over recent months after a spate of defaults by state-run companies since late last year. China Huarong Asset Management, the nation's largest bad debt manager and majority-owned by the finance ministry, is the latest to cause alarm. The company failed to file its annual earnings on time and is said to be leaning on state-run banks to meet bond maturity, though it has not defaulted yet.

Investors still prefer corporate bonds issued in the offshore market, since they tend to be more liquid than their onshore counterparts and have credit ratings issued by the likes of S&P Global Ratings and Moody's Investors Service.

Even though they are onshore, policy bank bonds are seen as less risky than corporate debt. "A key differentiator for policy bank bonds is that they tend to carry the same risk profile as China government bonds," said Pang. "This makes them quite distinct versus other state-owned-enterprise bonds. As a result, we don't see a lot of market pricing impact related to Huarong."

Overseas investors resumed net purchases of Chinese bonds in April after a surprise drop in March. The decline -- the first monthly net fall since February 2019 -- came as Chinese bonds' yield premium over US Treasuries narrowed, while the country also damped appetite by announcing plans for more debt sales than expected.

Investors returned after spreads widened by as much as 19 basis points in April and the yuan notched up its longest winning streak against the US dollar in seven months.

Foreign holdings of Chinese government bonds rose 2.5% from the previous month to a record 2.096 trillion yuan at the end of April, according to data from China Central Depository & Clearing Co. Foreign ownership of government bonds has doubled in the past two years.

Global investors now own 10% of Chinese government bonds compared with 4% of debt issued by policy banks, according to data from CCDC. This is seen rising to 15% and 10% respectively in the next three years by investors, including J.P. Morgan Asset Management.

Chinese government and policy bank bonds were first included in the Bloomberg Barclays Global Aggregate Bond Index in April 2019 and the country's weighting was gradually increased. JPMorgan's Government Bond Index Emerging Markets began including the bonds from February last year.

"We like high-quality, government-owned policy bank bonds," said Arthur Lau, head of fixed income in Asia-ex Japan at PineBridge. A combination of central government bonds and policy bank bonds "is the way to go, especially for investors who are not familiar with this market," Lau said.

Chinese government bonds and policy bank bonds together account for a third of the $18 trillion yuan-denominated onshore bond market. Local government bonds make up a fifth, with the rest coming from certificates of deposits and corporate credit, according to data compiled by PineBridge.

The nation's equity market, which fell into correction territory in March amid concerns of monetary tightening, rising global inflation and a regulatory crackdown on technology stocks, has witnessed foreign buying once again.

On Tuesday, overseas investors net bought a record 21.7 billion yuan worth of yuan-denominated shares listed in China via the stock connect scheme that links Hong Kong with mainland exchanges.

The CSI 300 Index, which tracks the largest listed shares in Shanghai and Shenzhen, has risen 5.3% since March 31 and notched the biggest rise in nearly a year on Tuesday.

Top News / World+Biz / China / South Asia

china / Asia

Comments

While most comments will be posted if they are on-topic and not abusive, moderation decisions are subjective. Published comments are readers’ own views and The Business Standard does not endorse any of the readers’ comments.

Top Stories

  • Soaring prices changing the way rural people live
    Soaring prices changing the way rural people live
  • Photo: PID
    PM Hasina urges development partners to help implement Delta Plan
  • Photo: Rajib Dhar
    Over 30 injured as BCL men attack Chhatra Dal procession near HC

MOST VIEWED

  • Photo: Collected
    IMF to release $900 million when Pakistan removes fuel price caps
  • Russian central bank
    Russian central bank slashes rates, flags more cuts
  • Owner of Hooked Fish and Chips shop, Bally Singh, poses for a photograph at his take-away in West Drayton, Britain, May 25, 2022. Picture taken May 25, 2022. REUTERS/Peter Nicholls
    The end of fish and chips? Rising prices threaten a British tradition
  • People line up for nucleic acid tests during lockdown, amid the coronavirus disease (COVID-19) pandemic, in Shanghai, China, May 26, 2022. REUTERS/Aly Song
    Global firms warn of sluggish China demand due to lengthy Covid curbs
  • A stop road sign is seen next to skyscrapers at Moscow International business centre, also known as "Moskva-City", in Moscow, Russia April 14, 2022. REUTERS/Maxim Shemetov/Files
    Russia prepares to seize western firms looking to leave
  • Workers carry sacks of wheat for sifting at a grain mill on the outskirts of Ahmedabad, India, May 16, 2022. REUTERS/Amit Dave
    India exported wheat worth $473 million in April

Related News

  • China, Australia foreign ministers vie for influence with Pacific visits
  • Shanghai heading out of lockdown but China still lost in economic gloom
  • China will give cash subsidies to airlines for two months
  • Global automakers face electric shock in China
  • China seeks Pacific islands policing, security cooperation - document

Features

Illustration: TBS

Should Belayets be allowed to return to school at 55?

2h | Pursuit
Impact Hub Dhaka is designed to cater to connectivity, offering lots of communal areas where you can chat over coffee, watch a webinar as a group or even host events. Photo: Courtesy

Inside Impact Hub: The surprising benefits of working in a co-working space

3h | Pursuit
Pacific Jeans uses sustainable technology in washing and finishing, and now has the facility to wash with zero water. Photo: Courtesy

How big dreams and smart investment made Pacific Jeans a denim exporting giant 

5h | Panorama
Psycure has received various awards for their extraordinary contributions to promoting Sustainable Development Goals. Photo: Courtesy

Psycure: Meet the organisation serving the underserved university students (and beyond) with mental healthcare 

1d | Panorama

More Videos from TBS

Why is Thanda Garam's juice so popular?

Why is Thanda Garam's juice so popular?

2h | Videos
Tea tales at TSC

Tea tales at TSC

4h | Videos
What journalism students want to know

What journalism students want to know

4h | Videos
Where the people have more weapons than military

Where the people have more weapons than military

15h | Videos

Most Read

1
Tk100 for bike, Tk2,400 for bus to cross Padma Bridge
Bangladesh

Tk100 for bike, Tk2,400 for bus to cross Padma Bridge

2
Bangladesh at risk of losing ownership of Banglar Samriddhi
Bangladesh

Bangladesh at risk of losing ownership of Banglar Samriddhi

3
BSEC launches probe against Abul Khayer Hero and allies
Stocks

BSEC launches probe against Abul Khayer Hero and allies

4
Photo: Courtesy
Panorama

Misfit Technologies: A Singaporean startup rooted firmly in Bangladesh

5
Illustration: TBS
Banking

Let taka slide

6
Photo: Collected
Industry

Spanish recycled cotton producer opens new facility in Bangladesh

The Business Standard
Top
  • Home
  • Entertainment
  • Sports
  • About Us
  • Bangladesh
  • International
  • Privacy Policy
  • Comment Policy
  • Contact Us
  • Economy
  • Sitemap
  • RSS

Contact Us

The Business Standard

Main Office -4/A, Eskaton Garden, Dhaka- 1000

Phone: +8801847 416158 - 59

Send Opinion articles to - oped.tbs@gmail.com

For advertisement- sales@tbsnews.net

Copyright © 2022 THE BUSINESS STANDARD All rights reserved. Technical Partner: RSI Lab