No free lunch

7 February 2017 By Lisa Jucca Follow @LJucca

JPMorgan and Citi have won coveted licences in China’s onshore bond market. China’s real goal might be to get inclusion in global bond indexes, which would bring stable foreign investment. But restrictions on capital flows make such bonds less appetizing than they could be.

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U.S. bank JPMorgan said on Feb. 6 it had received a licence to underwrite non-financial corporate bonds in China's interbank bond market, the first U.S.-headquartered bank to do so. European rival BNP Paribas was also awarded the licence.

Citigroup said on Feb. 7 that it had received a Type A Bond Settlement Agent licence, which allows it to settle bond trades on the secondary market and act as a custodian. Citi is the first U.S.-based bank to be granted a Type A licence. Other global banks with such licence include Deutsche Bank and BNP Paribas.

China is the third-largest bond market in the world with 44 trillion yuan outstanding at the end of 2016. The interbank bond market accounts for over 90 percent of that, Reuters said citing data from the China Central Depository & Clearing.

JPMorgan said in March 2016 it had placed Chinese government bonds under review for potential inclusion in its Government Bond Index-Emerging Markets Global Diversified Index.

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