Issues beset China's onshore bond market, says rating agency​


HONG KONG -- Beijing's liberalization of the multitrillion onshore bond market was a vital step in the internationalization of the yuan but a local rating agency said technical issues are hampering the participation of foreign institutional investors.

"For the bond market to take off, investors have to price the bond correctly. Basically, you need to know how to assess the risks," Warut Promboon, chief rating officer at Dagong Global Credit Rating, told reporters at a panel discussion on Thursday. Dagong is a Beijing-based agency founded in 1994 upon the approval of the People's Bank of China and the former State Economic and Trade Commission to grade onshore debt instruments.

The onshore bond market still had to address issues around information disclosure, taxation, capital repatriation and credit ratings before institutional investors would take the plunge.

According to a July report by Deutsche Bank, Chinese bonds remain underweight in international bond portfolios, making up only 1.5% of such portfolios, while those from Japan and the U.S. accounted for 9% and 38% respectively. This is despite China being the third largest bond market in the world.