Market Summary
Size and Composition

The amount of local currency bonds outstanding in the Peopleís Republic of China (PRC) grew 3.4% quarter-on-quarter (q-o-q) and 22.0% year-on-year (y-o-y) to reach CNY49.5 trillion (USD7.1 trillion) at the end of December. The expansion was driven mostly by Treasury bonds and other government bonds, which grew 5.9% q-o-q and 47.8% y-o-y. Growth in the latter category was fueled mainly by local government bonds, which grew 9.3% q-o-q and 220.2% y-o-y as local governments continued to refinance existing debt and issue new bonds. Central bank bonds outstanding were substantially lower at the end of December; the Peopleís Bank of China has ceased issuing bonds as remaining bonds mature.

Corporate Bond Issuance

Corporate bond issuance totaled CNY1.5 trillion in the fourth quarter of 2016 on 0.6% q-o-q growth as some companies were hesitant to borrow amidst tighter liquidity.

Policy and Regulatory Developments

In February, the PRCís State Administration of Foreign Exchange announced that it would allow foreign institutions investing in the PRCís interbank bond market to purchase currency forwards, currency swaps, cross-currency swaps, and currency options. Investors will be only allowed to purchase these derivatives to hedge their bond investments.