Foreign institutional investors in China’s inter-bank bond market, with the exception of foreign central banks, will be allowed to conduct domestic RMB foreign exchange (forex) derivatives transactions at qualified domestic financial institutions, according to a circular recently issued by the State Administration of Foreign Exchange (SAFE).
The circular was issued, according to SAFE, primarily to help such institutional investors manage forex risks more efficiently. The same reason was given last February when the People’s Bank of China (PBOC) – China’s central bank – announced the opening up of China’s inter-bank bond market.
The move will help reduce the foreign exchange hedging costs for foreign investors, attracting more foreign capital into the Chinese bond market, said Ma Jun, chief economist at the Research Institute of PBOC.
Notably, the principle that limits trading to the risk exposure needs of foreign exchange under hedged bond investment applies to foreign institutional investors as well as their peers within China.
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