CCB’s innovation in bond underwriting business helps open up China’s financial markets
By Ruoxin Qi
China’s bond market has become one of the largest and most important investment destinations in the world, but foreign investor participation remains relatively low. More innovations are expected in the bond market after the Chinese regulators issued new rules for foreign institutional investors.
- CCB introduced cross-border bond innovations to attract more foreign investors to the Chinese market
- Proprietary Global DCM Access system enables real-time exchange of cross-border investment information in the debt capital market
- CCB optimised its cross-border bond business process through digitalisation
On 18 November 2022, the People’s Bank of China (PBoC) and the State Administration of Foreign Exchange (SAFE) issued “The Provisions on the Administration of Funds of Foreign Institutional Investors Investing in the Chinese Bond Market”. It clarifies the requirements for the administration of funds of foreign institutional investors. China Construction Bank (CCB) aims to leverage the market-opening policies to introduce product and service innovations to attract more foreign investors.
As of 31 July 2022, the total size of China’s bond market reached $21 trillion (RMB 147 trillion), making it one of the most important markets for cross-border bond investment. Foreign investment in China’s bond market, however, makes up only 3% of the total and is mostly in government bonds and policy-bank bonds. According to ChinaBond.com, as of October 2022, foreign institutions hold 9.4% of government bonds and 3.6% of policy lender bonds and have limited investment in regional government bonds (0.03%), commercial bank bonds (0.43%), corporate bonds (0.12%), credit asset-backed bonds (0.90%) and other varieties. There is still plenty of room for improvement in the openness of China’s bond market, and more innovations are expected to attract investments from overseas.
Deepening China’s bond market not only serves the diversification needs of foreign investors but also promotes the internationalisation of RMB, boosting the attractiveness and competitiveness of China’s markets among international investors. To meet these needs, CCB came up with distinctive cross-border bonds that can help diversify the supply in the capital market.
CCB introduced cross-border bond innovations to attract more foreign investors to the Chinese market
Cross-border bonds, such as panda bonds and Chinese-funded foreign bonds, are some of the most powerful tools to support the opening up of China’s bond market. Panda bonds allow international issuers and investors to diversify the bond market structure. In recent years, more than 80 entities have issued over $89 billion (RMB 620 billion) of bonds in China. On the other hand, Chinese-funded foreign bonds have grown exponentially since 2015, with an existing size of 3,669 bonds and a 47% growth year-on-year (YoY). In such trends, CCB introduced cross-border bonds that are the first of their kind in the market, such as the special drawing rights (SDR)-denominated panda bond, the EU-China Common Directory global bond, and the EU-China Interconnection global bond, also known as “Yulan Bond”.
The pandemic control panda bond of the Asian Infrastructure Investment Bank (AIIB), the first sustainable development fixed-income securities in China’s bond market, was also issued with CCB as the lead underwriter. In the panda bond package, CCB provided benchmark pricing strategy, advice on issuance window, analysis of domestic investors’ structure and their preference, comparison of cross-border financing costs, and other services like domestic interest rate and exchange rate hedging quotes, bond and currency market dynamics update.
CCB also became the first Chinese bank to sign International Swaps and Derivatives Association (ISDA) and commercial service agreements with AIIB during the registration and issuance of its inaugural panda bond. AIIB was the first AAA-rated issuer to enter the China bond market since new regulations on panda bonds came out in 2018.
The proceeds from the bond sale were used to finance pandemic response projects, including those under its COVID-19 Crisis Recovery Fund. The facility, which had an initial size of $10 billion, provided financing for public health, economic, and financial emergency funding needs of AIIB members to help them recover from the crisis. Since the onset of the pandemic, AIIB has provided emergency financing for COVID-19 control projects in China, Pakistan, India, Indonesia, the Philippines, Georgia, Bangladesh, and other members. During the issuance of this bond, more than 20 domestic (35% of the investment) and foreign institutional investors (65% of the investment) posted a subscription rate of 2.78, indicating market confidence in the bond.
CCB also bridges the information gap between domestic and foreign investors through decision-making reference products. The CCB-Wind ESG Bond Issuance Index, for example, is the first primary market index in China’s market to merge environmental, social, and governance (ESG) and carbon-neutral goals and reflects benchmark interest rate changes in China’s green ESG bond market. The index was jointly developed by CCB, Wind Information and the Central University of Finance and Economics (CUFE) from the original CCB-Wind Interbank Bond Issuance Index. Also incorporated in the index were CCB’s green bond underwriting and issuance experience with relevant green bond standards and ESG rating methodology. CCB and partners select the sample bond that has ESG and carbon neutral effects above ESG rating standards, form a sample pool for the total index, and map out the index points and weights. The index is simultaneously released in China and the Luxembourg Stock Exchange (LSE) and is updated in real-time on the official website of CCB, Wind Financial Terminal and LSE to help investors grasp trends in China’s ESG bond market.
The CCB-Wind ESG Bond Issuance Index tracks the primary market prices of green bonds in China
Proprietary Global DCM Access system enables real-time exchange of cross-border investment information in the debt capital market
CCB’s Global Debt Capital Market (DCM) Access system optimises the information exchange process in cross-border bond projects. The system adopted a centralised and distributed architecture that leverages big data, blockchain, and cloud computing to establish an intelligent and secure system. It is designed to ensure real-time exchange and sharing of cross-border investment and financing information between domestic and overseas systems.
The proprietary Global DCM Access platform has taken one year to develop and adopted an enterprise level modelling method, applied a “centralised + distributed” architecture with technologies such as big data, blockchain, cloud computing, etc. Through the platform, CCB DCM established an intelligent, proactive, “security as a service” system – which is secure, stable, and scalable. Implemented across the global footprint of CCB, the platform is designed to ensure the seamless connection between domestic and overseas systems as part of an integrated global financial ecosystem, to achieve sustainable development in the future.
Since the launch of the Global DCM Access system, complemented by a new generation CCB core system and the Feichi e+ solution, issues with the synchronisation and distribution of bond information between its domestic and overseas operations have been solved.
Global DCM Access has also optimised the management of cross-border bond projects, established data norms, and realised the functions of business rule automation, smart adaptation analysis and smart data sorting, which boost efficiency in DCM business management and coordination. At the same time, based on the existing system, CCB has gradually built a financial technology ecosystem for cross-border bonds, with both internal and external participants, enabling instant global response. CCB’s cross-border ecosystem facilitates barrier-free end-to-end digital transmission of information, efficiently screens potential cross-border bond customers, and promotes business opportunities through the platform. The design of the Global DCM Access system leverages latest financial technologies to enhance its customer acquisition features.
In a word, the system deepens CCB’s global digital network connectivity and realise real-time exchange and sharing business information on cross-border bond investment. CCB is developing more functions to be integrated into the Global DCM system, such as intelligent underwriting, and looks to further improve the seamless application of the system through the whole lifecycle of cross-border bonds.
CCB optimised its cross-border bond business process through digitalisation
Thanks to a high degree of digitalisation, CCB’s cross-border bond business process has been significantly automated and optimised for end-to-end straight-through processing. At present, CCB Investment Banking Department (IBD) is led by the head office and is assisted by the domestic cross-border investment banking centre. To optimise the business process, cross-border bond contracting is coordinated by the domestic cross-border investment banking centre in Chengdu, supported by overseas cross-border investment banking centres, establishing a closed loop, efficient collaboration at home and abroad. To facilitate sales of bond underwriting, CCB onboard existing investors through electronic know-your-customer (e-KYC). The bank also assigned unique roles to overseas cross-border investment banking centres in Hong Kong, Singapore, and Europe to deepen its investment banking and capital markets business in Asia and support financial transactions between China and European countries.
CCB’s global investment banking centre in Hong Kong oversees the international development of asset management and investment banking businesses to continuously improve CCB Group’s ability to participate in the global capital market. The investment banking trading centre in Singapore is positioned as a regional flagship brand serving Regional Comprehensive Economic Partnership (RCEP) member countries, and to deepen investment banking and capital market business in Southeast Asia. The European DCM centre of CCB, meanwhile, makes full use of the policy advantages of “East-West two-way connectivity” between China and Europe and is dedicated to supporting economic, trade, investment, and financial exchanges between China and European countries, to create greater value for customers.
These three major overseas cross-border investment banking centres focus on cultivating cross-border markets. CCB will also further promote China’s financial market through collaborative innovation in products, digitalisation, and unique cross-border bond services.
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Keywords: CCB, PBoC, ESG, Bond Market, Cross-border Bond Investment, RMB, Global Dcm Access