Government bonds benefit Chinese nation, Chinese people over the past 40 years

This year marks 40 years since the issuance of China’s government bonds was resumed in 1981, with the country's central government debt reaching 20.89 trillion yuan ($3.26 trillion) last year.

File photo shows 100-yuan bank notes, the largest denomination of the Chinese currency. (Xinhua/Li Xin)

Index provider FTSE Russell finally gave its approval for Chinese government bonds to join its flagship bond index, starting from Oct. 29. This confirms China as one of the three major global bond indexes.

Standard Chartered predicted that by the end of this year the foreign holding rate for Chinese government bonds will hit 11.5 percent -12 percent, up from 9.1 percent in 2020.

The rising holdings of Chinese bonds reflects foreign investors' confidence in China’s bond market when it comes to the ongoing recovery from the COVID-19 crisis, said Zhang Licheng, a researcher with the Chinese Academy of Fiscal Sciences.

Meanwhile, in recent years policies and procedures for the issuance of RMB-denominated sovereign bonds on offshore markets have been continually optimized, prompting more foreign capital to flow into China’s bond market. This year’s first batch has already been issued in Hong Kong.

For investors, national bonds have multiple advantages compared with other investment instruments. Being issued by China's Ministry of Finance, savings bonds have an unparalleled credit rating, with their interest accrued up until maturity. The procedures are also user-friendly, wherein investors can purchase the bonds at a minimum amount of 100 yuan per purchase without the need for a risk assessment in advance. In addition, redemption before maturity is permitted, while such bonds can be used as collateral to apply for pledge loans.

As a result, the significant growth in China’s debt levels over the years has brought about a win-win situation for people’s daily lives and advances for the country, said Zhang.

For individuals, given the country’s shift towards middle-income status, they are seeking out lower-risk investment channels for their increasing household wealth and social capital, while government bonds can be regarded as the basis for perfecting reforms to the investment market.

“In the process of China’s economic take-off, the funds raised from the issuance of government bonds were used to construct large-scale infrastructure where appropriate before the economic conditions become completely mature, and to provide financial guarantees for solving key problems during extraordinary periods, playing an irreplaceable role in complementing the shortcomings of national economic development and promoting the high-quality development of the economy," said Zhang.

In 2020 for example, 1 trillion yuan of special anti-pandemic government bonds were issued to alleviate the huge impact of the COVID-19 pandemic on China’s economy, directly benefiting all the relevant corporations.

China’s Ministry of Finance recently issued 8 billion yuan worth of renminbi-denominated sovereign bonds in Hong Kong’s offshore market. Chinese government bonds “going global” not only helps boost the RMB internationalization but also bolsters the development of offshore RMB market in Hong Kong, Zhang added.