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China offshore repo activity jumps as foreign bond borrowing expands

Repos by offshore institutions reached 1.2 trillion yuan in August, up from 573 billion yuan a year earlier, but foreign repo still represents a small slice of total market volume.

Reported · Written up by our desk · China

China is seeing growing use of its offshore access to repurchase agreements, as foreign investors look to borrow against domestic bond holdings in a move aimed at improving onshore yuan liquidity. LiveMint Markets says the approach is designed to let investors raise short term onshore yuan by selling bonds and agreeing to buy them back later.

Data from China Central Depository & Clearing Co. shows offshore repo activity rose to 1.2 trillion yuan in August, more than double the 573 billion yuan recorded a year earlier. The Reuters backed effort follows a decision last September to expand foreign access to the repo tool, according to the article.

Citigroup’s Charles Lam, head of markets for the bank in Hong Kong, said the change has improved the market’s efficiency and attractiveness by giving investors a way to deploy Chinese government bonds for liquidity needs, the outlet reported. However, the article notes that foreign activity remains limited despite the surge.

Overseas institutions own about 2% of China’s onshore bonds, and their repo trades made up 1.2% of total market volume last month, according to LiveMint Markets. The piece also points to legal friction and low yields as factors that are constraining broader participation.

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