A bank staff counts RMB and US dollar notes in a bank in Nantong, Jiangsu province on Aug 6, 2019. (Photo: Sipa)

Inclusion on prestigious London-based benchmark FTSE list to begin in late 2021

The inclusion of Chinese government bonds on the London-based FTSE Russell index shows the international market recognition of China's financial opening-up, which will attract more capital inflows into the country's bond market, said experts.

According to the index provider's announcement released on Thursday, Chinese government bonds will be included on the FTSE World Government Bond Index starting in October 2021.

Confirmation of the inclusion date is subject to FTSE Russell's semiannual review to be held in March 2021.

With this latest achievement, China has now been included on the three major global bond indexes. The others are the Bloomberg Barclays Global Aggregate Index which gave the green light to China on April 1,2019, and the JPMorgan Government Bond Index Emerging Markets Global Core Index, which China joined on Feb 28.

FTSE Russell CEO Waqas Samad applauded China's efforts to enhance the infrastructure of the government bond market. The index provider's head of policy and governance, Chris Woods, commended China's recent market reforms, including enhancing bond market liquidity, allowing additional choices for counterparties in foreign exchange trading and implementing improvements in post-trade settlement and custody practices.

As calculated by FTSE Russell, China is now the world's second largest bond market with about $16 trillion securities outstanding.

Yang Aozheng, chief China analyst with global foreign exchange broker FXTM, said that the daily trading volume of Chinese bonds utilizing the bond connect mechanism has now reached 20 billion yuan ($2.9 billion) after China's inclusion into the Bloomberg Barclays and JPMorgan indexes, which is tenfold the figure when the bond connect program was launched in July 2017. The inclusion on the FTSE World Government Bond Index will certainly further increase trading volume, Yang said.

HSBC Global Research estimates that the FTSE inclusion will add about $150 billion in inflows to China's bond market. When combined with the Bloomberg Barclays and JPMorgan inclusions, the total capital inflow into China will likely reach $320 billion.

Candy Ho, global head of renminbi business development for global markets at HSBC, said the FTSE inclusion is a recognition from the index and the global investment community of China's progress and efforts in improving market accessibility for foreign investors.

"Overseas investors have been purchasing more Chinese bonds this year with a decent return amid the global zero-rate environment, ongoing global reserve diversification and inflows as a result of the two prior bond index inclusions," Ho said.

Statistics from the People's Bank of China, the country's central bank, show that up to 900 overseas institutions from 60 countries and regions held about 2.8 trillion yuan in renminbi bond by the end of August, including 130.4 billion yuan newly added in August, the 21st consecutive month that foreign investors have increased their position in Chinese bonds.

In the FTSE Russell statement, Pan Gongsheng, deputy governor of the People's Bank of China, said the market has continued to expand in depth and breadth and international investment in the market has grown by 40 percent annually over the past three years, fully reflecting international investors' confidence in the healthy long-term development of its economy, as well as its commitment to further opening up its financial markets.

"The PBOC will continue to work closely with industry participants to further enhance relevant regulations and to provide a more friendly, convenient investment environment for domestic and overseas investors," he said.