To promote the two-way opening-up of China’s financial market, the People’s Bank of China and the State Administration of Foreign Exchange have recently released the Rules on Funds Invested by Overseas Institutional Investors in China’s Bond Market. Clarifying how the funds invested in the market shall be managed, the Rules is conducive to making China’s bond market more accessible and more appealing to overseas institutional investors (“OII”).
Highlights of the Rules include: First, providing a uniform set of rules on matters relating to OII investment in China’s bond market, such as funds account, payments and receipts, currency exchange, and statistical monitoring. Second, improving the management of spot purchase and sale of foreign currencies, in particular permitting OIIs to complete transactions through a third-party financial institution other than settlement agents. Third, optimizing the policies on currency risk management, by providing additional avenues through which OIIs can hedge against FX exposures and removing the existing limit on the number of counterparties in OTC transactions. Fourth, strengthening the consistency management of inbound and outbound currencies, streamlining the outward remittance process, and encouraging long-term investment in China’s bond market. Fifth, clarifying the foreign exchange management requirements for sovereign investors. In particular, sovereign investors that invest through a custodian or settlement agent (commercial bank) shall complete registration at the relevant bank.
The Rules will take effect on January 1, 2023.
