The People’s Bank of China and the State Administration of Foreign Exchange issued a public consultation yesterday on the “Regulations on the Management of Domestic Bond Issuance Funds by Foreign Institutions (Draft for Comment)” to further unify and standardize the management of funds for bond issuance (hereinafter referred to as “Panda Bonds”) by foreign institutions in China, and promote The panda bond market is developing healthily.
There are 14 articles in the draft, covering the registration management, special account management, capital use, foreign exchange risk management, debt service management, statistical monitoring, and policy convergence experienced by foreign institutions when issuing bonds in different domestic markets. Uniformly regulate the panda bond fund account, fund exchange and use, statistical monitoring, etc.
The consultation draft clarified that the People’s Bank of China and its branches, the State Administration of Foreign Exchange and its branches, and the Ministry of Foreign Exchange Administration shall supervise and manage the accounts, fund receipts and payments and exchanges, and cross-border fund flows involved in domestic bond issuance by overseas institutions in accordance with the law.
The consultation draft stated that the funds raised from domestic bond issuance by foreign institutions can be remitted overseas or kept in China for use. Those retained for domestic use shall comply with the management regulations on direct investment and foreign debt. In addition, foreign institutions are encouraged to collect, pay and use the funds raised from domestic bond issuance in RMB in the form of cross-border. Overseas institutions can handle foreign exchange derivatives business in accordance with the principle of actual needs through domestic financial institutions that are qualified to conduct RMB-to-foreign exchange derivatives business on behalf of their clients, and manage the exchange rate risk of domestic bond issuance.
The People’s Bank of China stated in the drafting instructions that the draft for comment mainly follows two drafting ideas: perfecting the framework of the panda bond system and unifying the panda bond fund management rules.
At present, the issuance of bonds by foreign institutions in China involves two main markets: the inter-bank market and the exchange market, which are managed by the People’s Bank of China (Association of Interbank Market Dealers) and the China Securities Regulatory Commission (Shanghai and Shenzhen Stock Exchanges). Among them, panda bonds on the inter-bank market are subject to the Interim Measures for the Administration of Bond Issuance by Overseas Institutions in the National Interbank Bond Market, and panda bonds on the exchange market are mainly subject to the “Administrative Measures on the Issuance and Trading of Corporate Bonds”.
“These two measures stipulate the management requirements for bond issuance, registration and custody, transaction settlement, information disclosure, etc., but there is no unified regulation and lack of operation in terms of fund management related to fund accounts, fund exchange and use, and cross-border receipts and payments. The People’s Bank of China stated that the draft is intended to unify the regulation of panda bond fund management and promote the healthy development of the panda bond market.
The consultation draft unifies the bond issuance fund management rules of foreign institutions in different domestic markets, and clarifies the management requirements for panda bond fund information registration, account opening, fund exchange and use: first, integrated management of domestic and foreign currencies, and no funds raised from panda bonds are retained Restrictions are imposed on domestic or overseas remittances, and the use in the form of RMB is encouraged. The second is the registration of capital information. Foreign institutions can open special accounts after registering with the account-opening bank (or custodian bank) for the collection and use of funds raised from bond issuance. For domestic bond issuance in installments, it is allowed to register at one time and share a special bond issuance account to facilitate the overall management of bond issuance funds by overseas institutions. The third is to allow foreign institutions to conduct foreign exchange hedging transactions on panda bonds in China to manage exchange rate risks.
Wang Zhiyi, Dean of the Cross-border Finance Research Institute, said: “After the regulation of panda bonds this time, account requirements have been simplified, the free use of funds has been clarified, and the requirements for derivative hedging have been relaxed.”
Wang Zhiyi believes that the future issuance of more panda bonds is also of great significance to banks. Because if the panda bonds are transferred back for domestic use, it can greatly increase the amount of cross-border renminbi settlement, and many banks can also fight for the foreign exchange derivative hedging business of panda bonds.