![]() Currently, only government and policy bank bonds, which account for about 40 percent of the $12 trillion Chinese market, are included in a major global bond index. More securities may become eligible for index inclusion.These preliminary estimates may be conservative, for a number of reasons: Add the widely expected inclusion of Chinese bonds and equities into FTSE and JP Morgan indexes, and China can expect to see benchmark-driven portfolio inflows of as much as $450 billion, or 3 percent to 4 percent of GDP, in the next two to three years. Assuming an expected weighting of 6 percent, China can expect to see an additional $150 billion of inflows by 2020. Assets tracking the Bloomberg Barclays index could total $2 trillion to $2.5 trillion, according to analysts. How much? To get an idea, let’s look at the decision, announced in April, to include two types of Chinese bonds in the Bloomberg Barclays Global Aggregate Index-local currency-denominated bonds issued by the central government and by state-owned policy banks such as China Development Bank. This trend of rising foreign ownership is likely to accelerate further. Ownership of onshore equities has also increased but remains low compared with other emerging markets. In the past five years alone, foreign ownership of Chinese government bonds has quadrupled to almost 8 percent. ![]()
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