The People’s Bank of China (PBOC) issued the Notice on Pilot Scheme for Renminbi Clearing Banks and Other Eligible Institutions Outside the Mainland to Invest in the Mainland’s Interbank Bond Market on 16 August 2010. According to the Notice, the relevant offshore institutions are allowed to invest in China’s interbank bond market on a trial basis. The Notice sets out clear specifications regarding the scope of offshore institutions, means of access, mode of investment operation and other matters regarding the pilot scheme.

The Notice said: Under the pilot scheme, RMB clearing banks in Hong Kong and Macau, participating banks for RMB cross-border trade settlement and offshore central banks or monetary authorities may apply to invest in the interbank bond market. With PBOC’s approval, they may invest their RMB funds obtained through central bank currency cooperation, cross-border trading or investment in RMB business in the interbank bond market up to an approved amount. The Notice also puts forward specific requirements regarding the mode of operation, related party transaction, market supervision and other matters to prevent risks and promote the smooth running of the market.

The Notice also pointed out: More than 10 varieties of bonds, including treasury bonds and policy related financial bonds, are traded in the interbank bond market, which is an important platform for RMB institutional investors to conduct liquidity management and asset and liability management. Allowing relevant offshore financial institutions to invest in the interbank bond market will provide offshore financial institutions with a channel to hedge against the exchange rate risk of their legally obtained RMB funds. It is a necessary supporting measure for the pilot scheme for RMB cross-border trade settlement and will be of great help to the expansion of RMB cross-border trade settlement services.