(Yicai) June 17 -- The People’s Bank of China will establish a repurchase agreement (repo) facility for foreign central banks, international financial organizations, and sovereign wealth funds to help meet the liquidity management needs of overseas investors in the Chinese bond market, PBOC Governor Pan Gongsheng announced today.

The facility will support both pledged and outright repo transactions, allowing eligible overseas institutions to obtain yuan liquidity from the PBOC through bond repurchase agreements, Pan said at the Lujiazui Forum in Shanghai. Eligible collateral will include high-quality yuan-denominated bonds recognized by the central bank, such as Chinese government bonds, central bank bills, and policy bank bonds.

Repo tenors will include seven days, one month, and three months. The interest rate will be set by adding a spread to the rate of the PBOC’s seven-day reverse repo operations in the open market. Pan said the initiative is intended to better serve overseas institutions’ liquidity management and yuan asset allocation needs.

Broader Financial Opening Measures

Pan also unveiled several additional policy measures that the PBOC plans to introduce. These include a pilot program for offshore yuan foreign exchange trading in the China Shanghai Pilot Free Trade Zone. The first group of authorized banks will include the Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, Bank of Communications, and China Citic Bank.

The PBOC will also work with the Shanghai municipal government to formulate an action plan for offshore financial development. The plan will steadily advance offshore financial services, including offshore bond issuance in the FTZ, offshore trade finance services, and treasury centers for multinational corporations. The initiative is designed to help Shanghai build an offshore financial system commensurate with its role as an international financial center.

China’s stock and bond markets have already reached a relatively high level of openness, Pan said. The next step will be to promote high-quality two-way opening of the financial market, improve the convenience of cross-border investment and financing, and strengthen connectivity between domestic and international financial market infrastructure to provide overseas institutions with more efficient channels for investing in yuan assets.

In addition, the PBOC will further expand its open-market operations toolkit and improve its short-term interest-rate management framework. Measures under consideration include introducing more varieties of overnight reverse repo operations to better match the banking system’s short-term liquidity needs, Pan added.

Editor: Emmi Laine