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` Source: Fidelity International, June 2018 Within that period, China’s bond market size to GDP will be around 180-220 per cent, similar to the ratio in the US in recent years (China was at 86 per cent as of end-2016). This projection assumes China’s bond market will grow at a compound annual growth rate (CAGR) of 4-7 per cent from 2025-2035, depending on China’s projected GDP growth rate. Potential market sizeĪccording to our estimates, China’s onshore bond market could grow from approximately RMB 70 trillion in 2017 to RMB 280-440 trillion in total issuance outstanding by 2035 (USD 43-68 trillion based on exchange rate USD/CNY 6.5). Foreign investment in the asset class is likely to rise significantly in coming decades, driven by attractive yields, diversification benefits, the opening of cross-border capital channels such as the Bond Connect scheme and broadening inclusion of China’s onshore bonds into global benchmark indices. The government wants to increase international investor participation in order to help deepen the bond market and support the internationalisation of the renminbi. However, historical capital restrictions mean foreign investors hold a relatively tiny portion of the market. China’s onshore bond market is already the world’s third largest behind the US and Japan, and is still growing rapidly at around 20% a year.
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