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CCDC President Chen Gangming Addressed 2017 ChinaBond Annual Conference

Distinguished leaders, ladies and gentlemen:

Good morning! So pleased to meet with you here by the Huangpu River sharing our points of view on the development of bond market. All of you here are the leaders or experts of your organizations and also the practitioners and builders of the Chinese bond market. I would like to express my sincere respect and heartfelt thanks to you for your most welcomed presence here at the annual conference.

CCDC as the core FMI of the bond market has always been an active market participant and a witness to the history. The opening of the annual conference coincides with the critical juncture of the upgrading of China's bond market. I would like to take this opportunity to share with you three of my understandings.


First, at the critical time node of the 20th anniversary of the establishment of the inter-bank bond market, it is important to promote further market innovations

In 1997, the inter-bank bond market was established. After years of development, the Chinese bond market formed the basic pattern in which the inter-bank market plays the main role, supplemented by the exchange market. During the last twenty years, the Chinese bond market has achieved some leap-forward progress. The scale of the market continues to expand, the participant base continues to broaden, the variety of products is constantly enriched, and related systems continue to improve. As of the end of 2016, China's bond market became the third largest market in the world, and the outstanding bonds to GDP ratio rose to about 86%.

Market progress embodies the efforts of all parties, and CCDC as a national financial infrastructure is also duty-bound. Over the years, with the support and guidance of the regulatory authorities, we have made a lot of basic and groundbreaking contributions in promoting the modernization of China's bond market. Making full use of the “late-starting advantage”, we pushed Chinese bond market into the paperless era in just a few years compared with a hundred-year process in the developed markets. CCDC established a centralized securities depository system for the first time in China, together with a localized, transparent and efficient direct holding model, which supported the rapid rise of the OTC market and the formation of the basic pattern of China's bond market. We introduced the real time gross DVP settlement in line with the top international standard. We have set up a globally leading integrated life-cycle service system, facilitating access to market of investment and financing activities. In addition, based on the bond market, CCDC has been providing a set of ChinaBond Pricing Indices including notably the ChinaBond yield curves which capture the dynamics of the RMB bond market and set up a good industry practice for central depository bodies to provide much needed third-party valuations. We provide professional, intelligent and integrated bond collateral management services, including by building the internationally leading collateral management center. In addition, we have also done a lot of basic work in support of national fiscal, monetary, industrial and other macro-control policies.

Development is the eternal theme of the market, and the pace of innovation cannot stop. In the context of the 20th anniversary of the establishment of the inter-bank bond market, we need to summarize experience, keep pioneering and innovating, and strive forward. To this end, we must continue to promote the bond market institutional innovation. First, to further improve the inclusiveness of bond market so that it covers more issuers, and actively and steadily develop asset securitization, project bonds, high yield bonds and other products; second, to improve the eco-friendliness of bond market so that it can better support the sustainable development of the real economy, and actively foster the development of green bonds and the related instruments in a view of maintaining the advantageous place of China in global green finance (by last year, China was the world's largest green bond market); third, to improve the unity of the bond market, including by promoting the integration of depository and settlement infrastructures, optimizing bond market infrastructure layout, and establishing a new FMI paradigm which can match the international peers and is in line with China’s emergence as a great power.


Second, facing the daunting task of risk prevention and control, Chinese bond market needs to gain a firm foothold

Great as these achievements are, the associated risk factors warrant attentions. In recent years, as China's economic growth slows down, the structural and institutional problems that used to be overshadowed by the high growth gradually emerge; on the other hand, the situations at home and abroad are more complex, with increasing unstable and uncertain factors, and rising cross-industry and cross-regional risks along with the deepening financial Innovations. The above factors together lead to the recent rapid accumulation of financial risks with strong spillover effects. Last year, the Central Economic Work Conference pointed out that the risk prevention and control should be placed in a more important position. The latest national financial work conference emphasized the prevention and control of financial risk as one of the three important tasks, highlighting its urgency.

As the core component of financial market and the main channel of direct financing, the healthy and stable development of bond market is of great significance to the whole financial sector. In recent years, the credit risk, liquidity risk and interest rate risk of bond market manifested themselves more frequently and with greater magnitude. These problems, often intertwined, if not properly handled, will restrict the effectiveness of the market, thus affecting the long-term stable development of the bond market.

Under the current situation, for the bond market to gain a firm foothold, the key is to consolidate the market-oriented institutional base and make good use of risk control tools to prevent and resolve market risks. First, to accelerate the introduction of safer and more efficient liquidity tools, including the three-party repurchase and central bond lending mechanism, to optimize liquidity risk management, as recommended by the international good practices; second, continue to improve the information disclosure and credit rating system and perfect the disclosure-based bond issuance mechanism, for the purpose of enhancing the transparency of market and making the credit risk assessment more trustworthy; third, to perfect the standardized and legalized credit risk resolve system, optimize the market discipline and risk sharing mechanism, strengthen the supervisory coordination, and safeguard the legitimate rights and interests of investors; fourth, to continue to optimize the bond yield curves, especially the Treasury bond yields curves as the market benchmark, improve the pricing and indexing functions to reflect bond market operation, and, based on the above work, conduct the monitoring of leverage and market risks; fifth, to improve the collateral management system, including by enhancing the role of bond collateral as the "liquidity pivot" and "risk management pivot" in the market, where the gap is significant compared with the developed countries, expanding the application of collateral, and introducing the marking-to-market approach, so that the overall risk management of the market is enhanced; six, ​​to steadily expand the application of interest rate, exchange rate and credit risk hedging tools, strengthen the resilience of the market participants, and secure the market stability.


Third, at this critical juncture of bond market’s opening up, Chinese bond market needs to attach even more importance to its opening up and upgrading

Last year, the People's Bank of China No. 3 Announcement declared the full liberalization of China's bond market to direct participation of qualified foreign financial institutions and their financial products. Earlier this month, Hong Kong "Bond Connect" started trial operation, which further improve the openness of domestic market mainly through the interconnections between domestic and foreign financial infrastructures. In general, China's bond market has made great progress in its opening up, with more international multilateral organizations and foreign financial institutions issuing bonds in China, and much easier access to domestic bond market by foreign investors through direct account, settlement proxy, QFII, "Bond Connect" and other channels. The size of their holding of bonds has been steadily increasing

However, at this stage, there is still some gap in the opening up of China's bond market both in breadth and depth compared with developed countries, and it lags behind the requirements to construct a financial system that matches China's economic role in the world. Therefore, we should continue to upgrade the opening up of the bond market while keeping risks manageable.

First, to upgrade trading tools. The options include: opening reverse repo operations to foreign institutions (lending) first before the opening of repurchase (financing) under the premise of controlled leverage; limited opening of bond lending with a view of reducing cross-border settlement position scheduling risk; a moderate liberalization of risk hedging tools to foreign investors as long as they are used mainly for protective purpose.

Second, to upgrade access to the market. Hong Kong "Bond Connect" arrangement, which works mainly through the interconnections of financial infrastructures, provides a complementary method in addition to the direct access to the market by foreign institutions. At present, some foreign financial infrastructures have expressed constructive intentions to cooperate with domestic counterparties to explore more interconnection channels and mechanism between CSDs.

Third, to promote pilot free trade zone bond market innovation and upgrading. Free trade zone bond market can be an important window in the market opening. It is of critical importance to innovate FTZ bond issuance mechanism, so that domestic and foreign issuers can conduct their global fund-raising activities in a more flexible and convenient environment; to launch “Belt & Road” cross-border issuance framework; and to allow greater access of investors to the risk hedging instruments. By doing these, the pilot free trade zone can truly play the role of “experimental field”, bridging the onshore and offshore markets, and can also reinforce the influence and competitiveness of Shanghai City as an international financial center. A multi-dimensional opening path supported with multi-pronged efforts will definitely open our bond market to a higher level.


Guests and friends! The opening of the annual conference coincides with CCDC’s active promoting the construction of Shanghai Headquarters, which will further enrich and contribute to the Shanghai International Financial Center construction, especially in the field of function clustering and building of bond market professions. “The world is more enjoyable to a broad-minded soul.” I hope this annual meeting will serve as a useful platform for your communication and discussion of good ideas about the development of China bond market. I believe that, in the joint efforts of all, the China bond market will be able to achieve more success and progress with a more stable and calmer pace.

Finally, I wish this ChinaBond Annual Conference a good success.

Thank you all!


    Publish on :07/20/2017 10:48
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