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CIBM Direct creates a route for international investors to access Chinese onshore bonds, complementing long-established QFII and RQFII schemes which have been now merged into the QFI scheme recently.
CIBM Direct creates a route for international investors to access Chinese onshore bonds, complementing long-established QFII and RQFII schemes which have been now merged into the QFI scheme recently.
Announced in February 2016, the liberalisation of the domestic bond market through the CIBM Direct scheme was a further step in opening up Chinese financial markets to international investors and encouraging them to invest in Renminbi.
The CIBM Direct scheme created a route for international institutional investors to access onshore bonds, complementing long-established QFII and RQFII schemes, which have been merged into the QFI scheme recently.
Under the CIBM Direct scheme, foreign institutions can trade bonds directly through banks holding a Bond Settlement Agent licence in Mainland China (with only eight foreign banks, including BNP Paribas).
The CIBM market can also be accessed via Bond Connect through Hong Kong.
Under the CIBM Direct framework, international institutional investors are able to access cash bonds (both rates and credit bonds), bond repo and other derivatives.
The CIBM Direct scheme applies to a large range of investors: commercial banks, asset managers, insurers, securities houses, pension funds, charitable funds and other long-term investors approved by People’s Bank of China (PBoC).
Currency ratio control or currency scale control is imposed on funds to allow the bond settlement agent to monitor the RMB/FCY ratio as required by the Chinese regulator:
There is no lock-up period.
Before trading, offshore investors (including those with a QFI licence) must appoint an onshore settlement agent. The settlement agent submits the two-page filing form, which contains basic information and the settlement agent agreement signed by the onshore settlement agent and its client to PBoC.
PBoC will acknowledge the filing within 20 calendar days (usually 10 calendar days). The settlement agent manages the account opening on behalf of its clients – on a segregated basis – with the China Foreign Exchange Trade System (CFETS), China Central Depository & Clearing (CCDC) and the Shanghai Clearing House (SHCH). The settlement agent manages the offshore investor’s daily transactions and mandatory reporting to regulators (if required).
The CIBM Direct scheme complements the QFI scheme and significantly facilitates access to the Chinese fixed income market for foreign institutional investors:
BNP Paribas (China) Ltd. was granted a Bond Settlement Agent licence by PBoC in March 2015 and can provide settlement agent and custodial services for foreign investors who have an interest in the China Interbank Bond Market.
We welcome this major step in the continuing liberalisation of China’s financial markets. It enables international investors to diversify their fixed income portfolios, and gain access to this rapidly growing and increasingly important market. In addition, as international credit rating agencies are allowed to establish a presence in China since July 2017, foreign investors may be more secure in gauging Chinese corporate debt, which may be complex.
Foreign institutional investors are able to rely on a single Bond Settlement Agent partner – such as BNP Paribas (China) Ltd. – to access the onshore fixed income market. In this role, BNP Paribas (China) Ltd. fully manages the administrative process required to gain access to the scheme and ensure a seamless process from trade execution to settlement and custody.
March 2015 – BNP Paribas (China) Ltd. granted Bond Settlement Agent licence by People’s Bank of China (PBoC)
February 2016 – PBoC announcement of the new scheme to invest on CIBM
Q1 2017 – Offshore investors can hedge their forex exposure linked to their bond positions
June 2017 – The settlement cycle can be T+2 for offshore investors, in addition to the existing T+0 and T+1 cycle
June 2018 – Direct CIBM investors can hedge RMB FX risk offshore, enjoying onshore RMB exchange rate through offshore RMB participating Banks
November 2018 – Three-year income tax and VAT exemption on bonds interest granted to all foreign investors until 2021
August 2019 – The settlement cycle can be T+3 for offshore investors, in addition to the existing T+0, T+1 and T+2 cycle
January 2020 – Direct CIBM investors are offered with more channels to hedge their FX risk onshore
March 2020 – Non-standard settlement cycle T+N (N≥4) and recycling settlement is available to offshore investors for the cash bond settlement
September 2020 – Trading hours extended to 20:00 pm China time for trades with settlement cycle T+1 and above
March 2021 – Foreign investors are allowed to trade FX spot with onshore 3rd party agent
June 2021 – Simplification on the PBoC registration process for asset managers
October 2021 – Continue to exempt taxes on the bond interest for the foreign investors until end of 2025
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