(Yicai Global) Aug. 22 -- Although China's recently introduced Bond Connect program has proven very effective in attracting foreign investors to the its bond market, Chinese credit rating agencies should aim to expand globally in order to provide overseas investors with a deeper understanding of the domestic bond market, says Joe Zhou, vice president at stock market operator Hong Kong Exchanges and Clearing Ltd. [HKG:0388].
Bond Connect has brought in more than 150 new clients to the Chinese mainland interbank bond market over the past month, up from about 400 before its introduction, Zhou said. The balance of offshore investors' holdings in Chinese bonds grew by almost USD6 billion (CNY40 billion), and "Bond Connect has contributed a considerable proportion of the growth," he added.
Investors from abroad were not very keen on the Chinese bond market before the launch of the initiative, Zhou continued, mainly because they needed time to familiarize themselves with China's policies. The biggest inhibitors were the different market infrastructure, modes of investment, trading practices and operations.
"With the objective of removing barriers, Bond Connect was designed to simplify bond investment for overseas investors in terms of institutional arrangements, cost composition and operating procedures," he added.
However, foreign institutions are still not familiar with the mainland credit rating system, and have doubts about credit bond ratings, Zhou contends.
The People's Bank of China granted foreign rating agencies permission to operate credit rating businesses in the interbank bond market on July 3, the same day that Bond Connect began.
Chinese rating agencies should cooperate with the program more closely, and look to foreign markets to introduce the mainland bond market to more offshore investors, he said.
Opening up the credit rating market can facilitate deregulation and development of the bond market, encourage the inclusive development of the credit rating industry itself, and also help to further develop existing credit rating business management mechanisms.