Following a strong recovery from the pandemic, China is facing powerful headwinds of tepid consumer demand, supply chain disruptions, and uncertain external economic conditions. Longer term, issues such as an ageing population, decarbonization and the prospect of policy tightening in advanced economies will all have an impact on China’s growth trajectory. Regulatory reforms in several industries, renewed domestic Covid-19 outbreaks and debt woes in the real estate sector are also adding to market concerns.
On the other hand, China’s linkage with global markets is deepening. Foreign inflows into the domestic bond market remain healthy – foreign holding of Chinese government bonds (CGB) reached US$397 billion at the end of January 2022, according to the data released by the People’s Bank of China (PBoC). With this representing an allocation of 4.2% in what is the world’s second largest bond market, there is considerable potential upside when compared with around 30% of US treasuries held by foreign institutions.
In line with the greater focus on sustainability, China is blending its growth strategy to embed environmental protection as a core element as the country works its way towards peaking carbon emission by 2030. The transition won’t be easy. New clean infrastructure and sustainability-related investments would be required. With the PBoC and the European Commission coming together to produce the Common Ground Taxonomy, Climate Change Mitigation Instruction report, the promise of harmonized green definition could set the stage for green investors to enter the China market.
The coming 12 months, therefore, will be about managing plenty of challenges but also capturing a surfeit of opportunities. The onshore bond market will capture investors’ attention especially as the government is front-loading issuances to stimulate economic activity. Meanwhile, the offshore bond market will likely continue to be under the shadow of the blow-up in the high-yield property bond market during the second half of last year.
The Asset Events+ is pleased to be hosting the annual Asia Bond Markets Summit, China. Now in its second decade, the Asia Bond Markets Summit is the region’s preeminent fixed-income conference, bringing together issuers, investors, policymakers and other stakeholders involved in Asia’s bond markets.