Investing in asset-backed notes through the Bond Connect scheme: a new channel to access the Chinese debt capital markets

Overview and background
 
In July 2017, Mainland China and the Hong Kong SAR launched the Bond Connect Scheme ("Bond Connect"). Bond Connect is a milestone in the liberalization of the Chinese debt capital markets, a significant opportunity for international market participants that allows overseas investors to access the Chinese domestic bond market under a much-simplified application process.

The Chinese bond market is the third largest in the world (only the U.S. and Japanese markets are larger), with an estimated RMB 76 trillion of outstanding domestic bonds (equivalent to about US$ 11 trillion).  Through Bond Connect, investors from outside the PRC can invest in asset-backed medium term notes programmes, a type of securitisation product issued on the China Interbank Bond Market ("CIBM"). Here we discuss how they can do this.

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