(Yicai Global) Oct. 28 -- China’s decision to extend a preferential tax policy for overseas investors in the mainland bond market is meant to promote the market’s opening, according to analysts.

The decision to extend the policy to Dec. 31, 2025 was made yesterday at an executive meeting of the State Council chaired by Premier Li Keqiang. ”We will make greater efforts to attract foreign investment, and welcome overseas investors to our bond market on the mainland,” Li said.

The policy exempts overseas institutional investors from corporate income tax and value-added tax on bond interest gains arising from investment in the mainland bond market. The current three-year exemption period was due to expire on Nov. 6 this year.

The main purpose of the extension is to continue to support the bond market’s opening and attract overseas investors to the Chinese market, Ming Ming, deputy director of the Citic Securities Research Institute, told Yicai Global.

From the perspective of China-US yield spread, extending the policy can increase the attractiveness to China’s bond market and, to a certain extent, hedge against the negative impact of a hike in US interest rates and the rising US bond yields on the Chinese bond market, Ming added.

The decision will dispel foreign investors’ doubts and keep them motivated to allocate assets in the Chinese bond market, according to a macro researcher at a joint-stock bank.

But Ming said the tax exemption policy may not be enough to awaken appetite for Chinese corporate bonds. Foreign investors are unfamiliar with Chinese corporate bonds due to several factors including the difference between domestic and foreign rating systems, infrastructure, and investment ideas, he said.

Chinese treasury bonds and financial bonds are still the favorites of overseas investors. As of September, bonds in China’s interbank market held by foreign institutions totaled CNY3.84 trillion (USD600 billion), accounting for 3.5 percent of the total custodial amount in the interbank market. They held CNY2.28 trillion of treasury bonds and CNY1.08 trillion of financial bonds.

Editors: Tang Shihua, Futura Costaglione