Our reporter Liu Qi

  Today, Chinese government bonds are officially included in the FTSE World Treasury Bond Index (WGBI).

The inclusion process will be completed step by step within 36 months, by which time the weight of China’s government bonds in the FTSE World Treasury Index will reach 5.25%.

  In recent years, the reform and opening up of China's bond market has progressed steadily.

At present, China's bond market has developed into the world's second largest bond market, and its ability to support the real economy has been significantly enhanced, and it has attracted more international investors to actively deploy.

Wind information data shows that as of October 28, 2020, the stock of China's bond market has reached 126 trillion yuan.

According to data from China Central Clearing Corporation, as of the end of September, the denomination of overseas institutional bonds under custody reached 3494.1 billion yuan.

  Ranked among the three major global bond indexes

  On September 25, 2020, FTSE Russell announced that Chinese government bonds will be included in the FTSE World Treasury Index.

Pan Gongsheng, deputy governor of the People's Bank of China and director of the State Administration of Foreign Exchange, said at that time, "This fully reflects the confidence of international investors in the long-term healthy development of China's economy and the continuous expansion of the financial sector."

  Foreign Ministry spokesperson Wang Wenbin stated at a regular press conference of the Ministry of Foreign Affairs on September 28 last year that China’s national debt was included in the FTSE World Treasury Index, reflecting the positive results of the continuous expansion of China’s bond market and financial market’s opening to the outside world. International investors have confidence in the effectiveness of China's capital market reform and opening up, as well as confidence in the long-term healthy development of China's economy and continuous improvement and optimization of the investment and business environment.

  On March 29 this year, FTSE Russell announced its decision to include China’s government bonds in the FTSE World Treasury Index starting on October 29 this year.

FTSE Russell CEO Vakas Samad said in the announcement that this decision reflects FTSE Russell’s affirmation of the great achievements of China’s market reform.

  Chinese government bonds have been included in the Bloomberg Barclays Global Aggregate Index and the JPMorgan Chase Global Emerging Market Government Bond Index.

Coupled with the FTSE World Treasury Bond Index, China's Treasury Bonds have successfully ranked among the three major global bond indices.

  Bring continuous incremental funds to the bond market

  "The World Treasury Index is the flagship index product with the largest amount of funds tracked by FTSE Russell, and it is also the benchmark for the global government bond index. The inclusion of China's Treasury bonds in the World Treasury Index indicates that China's bond market infrastructure has met international standards and can guide the allocation of international bonds. The further entry of funds into China's bond market has brought continuous and substantial capital inflows to China's bond market." Chen Li, chief economist and research institute director of Chuancai Securities, told the "Securities Daily" reporter.

  CICC analyzed in relevant research reports that at the level of potential passive incremental funds, if the tracking index AUM (asset management scale) is estimated in the range of US$3 trillion to US$5 trillion, 5.25% will correspond to It is about US$150 billion to US$260 billion in passive incremental funds. The 36-month batching means that the monthly inflow of funds is about US$4.2 billion to US$7.2 billion.

The monthly volume impact brought by the FTSE World Treasury Index is lower than that of the Bloomberg Barclays Global Composite Index. The market volatility caused by such considerations.

  "Foreign investors are no stranger to Chinese bonds. They have previously participated in domestic bonds and offshore Chinese bonds investments through other channels. Many international investment institutions have already completed risk and compliance reviews and related registration filings. Tracking FTSE Russell There are also many agencies for the Treasury Bond Index. Even if it is passively allocated, it is a large-scale capital inflow.” Zheng Lei, chief economist of Baoxin Finance, said in an interview with a reporter from the Securities Daily that China’s treasury bonds are included in the FTSE World Treasury Bond Index. Becoming a large-scale asset allocation product is a landmark event for Chinese bonds to further integrate into the international market, and will gradually divert funds from the European and American bond markets.

The passive allocation of funds will be completed in a short period of time. As China's long-term economic prospects become clearer and clearer, there will also be inflows of active allocation of funds in the future.

  Promote further improvement of relevant rules

  In an interview with the "Securities Daily" reporter, Oriental Jincheng Research and Development Department believes that in addition to driving capital inflows, "being rich" can also bring more overseas institutional investors into the Chinese bond market and help build a diversified investor pool. Structure and improving market liquidity will also help promote the further improvement of relevant rules in the domestic bond market.

At the same time, China's national debt "getting into the rich" will also increase the attractiveness of RMB bonds, which will help further activate the RMB's international financial transaction function and consolidate the RMB's international reserve status, which is of positive significance for accelerating the internationalization of the RMB.

  In Zheng Lei's view, as more international funds are added to the Chinese bond market, domestic investors need to consider the expectations and reactions of overseas markets more and improve their investment and research capabilities and risk management level.

  "The increase in the scale of cross-border inflows and outflows of foreign capital will increase the volatility of China's cross-border capital flows and increase the difficulty of exchange rate stability. Monetary policy formulation must consider the impact on domestic liquidity and interest rates as well as the impact on the international market." Wang Youxin, a senior researcher at the Bank of China Research Institute, said that considering that the current bond market in China is dominated by domestic investors, and interconnection trading mechanisms such as Bond Connect are priced and settled in RMB, the impact on the foreign exchange market and domestic liquidity is relatively controllable.

  Regarding how to prevent cross-border capital changes while expanding opening up, Oriental Jincheng Research and Development Department believes that the management framework of “macro-prudential + micro-supervision” for cross-border capital flows can be further improved, and the two-way monitoring of cross-border capital inflows and outflows can be strengthened. At the same time of early warning, a sound coordination mechanism for dealing with extreme market conditions shall be established and improved.

(Securities Daily)