21世纪经济报道记者何柳颖 海南博鳌、深圳报道

Foreign investors saw a net increase of 41.6 billion U.S. dollars in their holdings of China's domestic bonds in the first quarter of 2024, official data showed on April 18th. This figure is notably higher than the total net increase of 23 billion U.S. dollars registered in 2023.

“China is now the second largest bond market in the world and I think that's a remarkable situation in modern history. ” Bryan Pascoe, The Chief Executive of ICMA（International Capital Market Association）shared his insightful perspectives on the development of China's bond market in an exclusive interview with us. 

At the same time, Bryan Pascoe is seeing healthy growth in the panda bond market. In his viewpoint, this supports the funding requirements in the Renminbi of international bond issuers.

This year the FED is very likely to cut interest rates, but the geopolitical environment is still very complex. How will the bond issuance go this year?

“This year saw a very strong start in the international markets. I think market conditions for bond issuance currently are very strong. We've seen very strong inflows into funds in terms of retail money flowing into funds and institutional participants also. And that helped to create a very strong demand for new issuance.”Bryan Pascoe told us. 

“And there's the potential for inflation to come back and stay higher. And at the same time, this year we've got a large number of elections, so politics will likely play a role perhaps in leading a higher market uncertainty as we get further into this year.”He added. 

ICMA brings together members from all segments of the wholesale and retail debt securities markets, through regional and sectoral member committees, and focuses on a comprehensive range of market practices and regulatory issues which impact all aspects of international market functioning.

ICMA prioritizes three core fixed-income market areas – primary, secondary, repo, and collateral: with two cross-cutting themes of sustainable finance and FinTech and digitalization.

SFC Markets and Finance: Firstly, could you tell us about the ICMA？Especially the operation in China. And what are your priorities in the near future？ 

Bryan Pascoe：ICMA is the leading trade association in fixed income and repo markets internationally. We have a very large membership of over 620 organizations from 68 jurisdictions, so we're truly international.

We do have a very strong presence in Asia, where we have a large and growing membership, who we work with on a number of things，principal area focus on standard setting，ensuring market practice is well served and also working with our members on regulatory advocacy when there are regulations coming that need our support to work with the authorities.

So we're active across all areas of fixed income and repo, and we focus also very intensively on sustainable finance. We are the Secretariat for the Green Bond Principles (GBP) and Sustainability Bond Guidelines (SBG). And also increasingly digitalization of technology is a key area of our activities.

Now in China in particular, we have a longstanding membership here. We've been doing work in Chinese market for a long time. Again, we focus on key issues of market development, supporting important engagement initiatives, such as the connectivity with Hong Kong, to help to boost international investor participation here.

We've been very active in terms of helping to support the repo market development. Repo is a very important, fundamental area of financing and liquidity provision. And we see areas where the Chinese market can align more with international standards, which will boost international participation and be very helpful for broadening the overall depth of the market. 

Sustainable finance in China as well as creates a huge topic. China has become a very big player in the global ESG market.We work with our members and stakeholders to try to promote harmonization and cohesion with international standards. 

SFC Markets and Finance: This year the FED is very likely to cut interest rates, but the geopolitical environment is still very complex. How will the bond issuance go this year?

Bryan Pascoe: Internationally or domestically?

SFC Markets and Finance: Internationally.

Bryan Pascoe: This year seen a very strong start in the international markets. I think market conditions for bond issuance currently are very strong. While rates are a little bit higher I think than most people would like to see. We're expecting rates to come down, but at a reasonably smooth pace.

And that sets a very good environment for demand from the investor side. We've seen very strong inflows into funds in terms of retail money flowing into funds and obviously institutional participants also.

And that helped to create a very strong demand for new issuance. We've seen issuers take a strong advantage of this issuance conditions across different asset classes. We've also seen a compression in corporate spreads against the U.S. treasuries and similar kind of market situation in Europe. 

So overall market conditions internationally are very strong for issuance. Notwithstanding the fact that rates are a little bit higher than people would like.That doesn't mean to say that we can be complacent. I think some geopolitical issues are still a concern. 

There's obviously the potential for inflation to come back and stay higher. And at the same time, this year we've got a large number of elections, so politics will likely play a role perhaps in leading a higher market uncertainty as we get further into this year.

SFC Markets and Finance: Then how about the bond market in China? Will it different from other countries?

Bryan Pascoe: I think the interest rate cycle here is obviously at a very different point. Rates are lower in China than they are internationally. I think that's how the impact of making perhaps investment into china from an international investors perspective less attractive, because the rates are lower. 

But at the same time, what it has done is create a very strong environment for borrowers. So the market currently is quite challenging for many Chinese issuers to issue in the international markets. 

At the same time, we're seeing a healthy growth in the panda bond market, supporting obviously the funding requirements in Renminbi of international bond issuers. 

SFC Markets and Finance：Bond issuances in China totaled 71 trillion yuan (about 10 trillion U.S. dollars) in 2023, up 14.8 percent year on year. What factors do you think are driving this trend? Internationally, where does this performance rank？ 

Bryan Pascoe: We did see quite a significant increase in total volumes in the onshore bond markets last year. I think that's probably a combination of factors. Firstly, the government continues to issue treasury bills and bonds in significant size. We do obviously also see the ongoing funding needs from the local government.

As I perhaps mentioned earlier, some of the funding that in the past might have been conducted through issuing bonds in the offshore market, they are now looking more specifically at onshore opportunities, because it's a better funding environment.

SFC Markets and Finance: Now China has become the second largest bond market in the world. How do you see the development of China's bond market? 

Bryan Pascoe: China is now the second largest bond market in the world and I think that's a remarkable situation in modern history. Chinese government only restarted to issue government bonds around 40 years ago.

So that's from a standing start. Now, the second largest bond market in the world. So that change has been remarkable.

That said clearly the market hasn't necessarily involved in the smoothest way.There are a number of challenges. I think the domestic market still faces the relative lack of liquidity. The investor base is still very heavily dependent on the banks. We see a lack of international market participation as well, that we would like to promote.

And the environment is quite complex also. The regulatory environment is as quite fragmented as the market structure. So while the development and the progress has been tremendous, I think there's still a lot of room for further improvement. 

SFC Markets and Finance: We all know that the capital market needs opening up. But on the other hand, the security problem exists. How do you see the further opening up of China's bond market?

Bryan Pascoe: Some of the reforms that have been put in place are very strong, but we do think there's room for further improvement.

We have seen recently promotion of further activity from international players in the domestic repo market. We think that's a very important process to continue to build upon.

Building the connectivity is key. Hong Kong is really the leading financial center for connection into Chinese mainland. We clearly would like to see further usage and leverage of that role to boost players coming into the market. And I think we need greater harmonization and standardization and cohesion.

Back to the sustainable finance subject, it should increase the number of international investors. They would be keen to look at Chinese domestic bonds when they're looking to invest in sustainable product as well.

SFC Markets and Finance: Let's talk something about the green bond that you have mentioned. How do you see the opportunities of the green bonds, especially in China? And what kind of aspects need to be improved? 

Bryan Pascoe: Sustainable finance is an incredibly important subject for us to deal with right now. And the market is already very large in size and has matured significantly over the last few years. 

China has been a major player as well in that process of issuance in green and sustainable labeled products. For further genuine market progress, I think it's important to continue to work on standards, high standards with integrity, aspiration of standards.

Coming back to the point around harmonization and standardization and cohesion, it's very important that investors and issuers understand frameworks and be able to align with very clear guidelines and international standards. So I think the more progress on harmonization will certainly help to promote the green bond and sustainability bond to a much greater degree. 

We were very encouraged in 2022 the China green bond standards aligned with the ICMA international green bond standards. I think that was a very positive signal.

Other positive initiatives have been taken, such as the intention to align with ISSB reporting standards, for example. And also the work that's been done with other jurisdictions such as Asean and the European Union on the Common Ground Taxonomy, which we look to create equivalence and alignment on some of the activities and the catalogue of activities that can be considered to be sustainable activities.

As mentioned, I think the Chinese market is already very large in size of green bond issuance. And the potential for further growth is significant. Alignment as I said in harmonization with international standards is a critical element to this.  

Also the theme of transition finance is something that's very important, transition to help to support hard to obey industries to meet climate goals going forward. We need to be in a position to put together transition plans that can work with financing instruments to help some of these industries and companies move to transit their businesses to a cleaner and carbon neutral environment. 

The one thing as well I think that's very important in terms of challenges is the issue of Greenwashing. I think there's been a lot of concerns about some of the credibility of instruments onshore in China, but internationally as well in terms of the aspirations or the transparency of bond issuance.

So I think helping to put clearer frameworks around Greenwashing, making sure that regulation and market practices is aligned, making sure that we're able to control and eradicate Greenwashing to the greatest extent possible.

SFC Markets and Finance: Some people will worry about the capital return of the green bonds. What do you think about that？

Bryan Pascoe: I think we do sometimes see a small benefit for issuers by issuing green bonds in terms of a lower rate. At the same time, investors should see that as a price to pay for the longer term benefits.

Looking at the credit, I think if a corporate has a very clear plan in the medium to long term about how they will address their transition requirements, or they're investing for the future in which will make their business more efficient and hopefully cheaper. Then that's a good opportunity for investors to get involved in those entities early. So they can benefit from the long term, greater efficiencies and better business that those entities will likely generate.

SFC Markets and Finance: How do you see the bond market development of GBA？

Bryan Pascoe: I think the GBA has a huge potential. It's probably one of the biggest economic subregions within China, connecting so many energetic and innovative cities and benefiting from that connectivity with Hong Kong as a financial hub.

I think there'll be a lot of potential for the GBA as a region to play a greater role in the financial markets in China as we look ahead. We have seen some innovations in China, specifically focused on financing the tech industry and utilizing the bond market to do so. 

So I think to the extent that the right standards can be developed, the credit culture can be developed to help to foster some of those financing challenges. Using the bond market directly to help to promote the technology space would be a very welcome addition to what's already a growing and broadening bond market.  

策划：于晓娜    

监制：施诗

责任编辑：李依农 杨雨莱

记者：何柳颖

制作：蔡于恬 

拍摄：杨雨莱

新媒体统筹：丁青云 曾婷芳 赖禧 曾昭发

海外运营监制: 黄燕淑

海外运营内容统筹: 黄子豪

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出品：南方财经全媒体集团