Chinese government debt will enter a global benchmark bond index, a move that should attract more foreign investment in China’s financial markets, despite the economic slowdown. Chinese growth recorded its worst historic result at the start of the year when the Covid-19 epidemic paralyzed the country.
Last year, China’s GDP had already posted its worst performance in nearly 30 years (+ 6.1%), as the trade war with Washington intensified. If China is gradually recovering from the epidemic, it is at the cost of enormous economic repercussions: millions of people have lost their jobs and the country has injected billions to support a weakened activity.
FTSE Russell, a subsidiary of the operator of the London Stock Exchange, announced Thursday that from October 2021 Chinese government bonds will be included in a global benchmark, the WGBI. According to the Goldman Sachs bank, the operation could attract up to 140 billion dollars (120 billion euros) on the Chinese financial markets.
The Chinese bond market, estimated at 16 trillion dollars (13.7 trillion euros), is the second largest in the world. However, foreign investors currently represent only a tiny fraction of buyers. Chinese government bonds are already included in two international indices: the Bloomberg Barclays Global Aggregate Index and the JP Morgan Government Bond-Emerging Markets Index.
China lifted several major restrictions on foreign investment in the financial sector this year, a move the United States has long called for amid commercial and technological rivalry. Foreign banks can now establish branches in China and own all of the capital without necessarily partnering with a local partner.