China has issued more preferential policies to attract foreign investors to the bond market, including reducing taxes and easing foreign exchange regulations, to support the further opening of the financial sector, the central bank said.
The People’s Bank of China, the central bank, cited a notice released Thursday by the country’s tax authorities, saying that the income of foreign institutions from interest payments to hold bonds in the domestic market is temporarily exempt from the tax. corporate tax and value added tax from November 7, 2021 to December 31, 2025.
This policy was first mentioned at an executive meeting of the State Council on October 27. A statement at the end of the meeting said that China would expand the preferential tax policy for foreign investors participating in the domestic bond market, as part of its efforts to promote openness and attract foreign investment.
It is also an extension of the preferential tax policy from November 7, 2018 to November 6, 2021, which will help attract more foreign capital and encourage foreign investors to participate in national economic development through the bond market, Guan Tao, chief global economist at BOC International, told media.
In order to streamline the regulation of the management of bond funds issued by foreign institutions in China, known as “panda bonds”, the PBOC and the national foreign exchange regulator, the State Administration exchange rates, jointly released draft new policies to the public on Thursday. notice before January 1, 2022.
The rules relate to the management of the capital account, the transfer of capital and cross-border collection and payment. They offered an integrated way to manage local and foreign currencies. There will be no restriction on withholding funds raised by panda bonds, according to a document posted on the PBOC website.
Funds raised by bonds can be transferred overseas or held in China for domestic investment. Those for domestic use must comply with regulations on foreign direct investment and foreign debt, according to the draft.
Financial regulators will allow foreign institutions to perform currency hedging for panda bonds in China, a currency risk management measure, the PBOC said. In the meantime, the number and type of foreign exchange derivative counterparties will not be limited.
China Construction Bank Financial Markets Department analysts believe the new rules aim to standardize the way panda bond funds are managed in two markets: the interbank market under the supervision of the PBOC and the forex market supervised by the China Securities Regulatory Commission.
The move is conducive to improving the regulatory framework and promoting the development of the domestic panda bond market, they said in a note released on Friday.
Chinese government bonds were included in the FTSE World Government Bond Index on October 29, marking the third inclusion in the Global Bond Index after the Bloomberg Global Aggregate Index and the JPMorgan GBI-EM Global Diversified Index. After years of development, China is currently the world’s second largest bond market.
“Inclusion has sparked trade momentum and boosted liquidity of Chinese bonds in international bond markets,” said Wang Sheng, member of the board of directors and head of investment banking at CICC.