BEIJING/HONG KONG, April 18 China's central bank is considering opening a new channel for foreign institutions to invest in the domestic bond market, two sources familiar with its deliberations said, potentially widening access to the country's largely closed capital markets.
Such a move would go beyond a proposal, reported by Reuters on Thursday, for the People's Bank of China (PBOC) to give foreign state investors - central banks and sovereign wealth funds - and multilateral institutions such as the World Bank greater scope to invest in the interbank bond market.
On Friday, the sources said the PBOC was also considering giving greater market access to private foreign institutions.
Reuters was unable to reach the central bank for comment.
The sources said the plan was discussed at a recent meeting between the central bank and senior banking executives in Beijing, but did not give further details on how the rules would be relaxed or any contemplated timeline for implementation.
Such a move could increase access to the world's third-largest bond market for foreign banks, insurers, hedge funds, and other asset managers, though the sources did not specify which specific types of institutions could gain access.
Offshore institutions owned about 191 billion yuan ($30.7 billion)of bonds at the end of March, or less than 1 percent of total bonds outstanding, according to Reuters analysis of figures published by the China Central Depository Trust and Clearing Co Ltd.
Under its reform agenda, the government last year pledged to open up capital markets and increase cross-border capital flows, steps which economists have said could improve capital allocation by reducing distortions in financial markets.
Foreign investors are currently allowed to participate in the bond market through the Qualified Foreign Institutional Investor (QFII) programme, which controls foreign access to Chinese financial assets through a quota system.
When it was launched in 2002, QFII only permitted access to stock exchanges. The program was expanded last year to include the interbank bond market, but market participants say QFII investors still mainly used it to buy equities, in part because most QFIIs gained their approval when stocks were virtually the only option.
Foreign central banks with currency swap agreements with the PBOC and commercial banks involved in clearing offshore yuan transactions can also apply for interbank bond market quotas through a separate channel. The size of those quotas is not public. ($1 = 6.2190 Chinese Yuan) (Reporting by the Beijing and Hong Kong Newsrooms; Writing by Gabriel Wildau; Editing by John Mair)