The Chinese central bank has finally granted Qualified Foreign Institutional Investors (QFII) access to its onshore interbank bond market.
The China Securities Regulatory Commission (CSRC) first revised rules to allow QFIIs to invest in the interbank bond market nearly nine months ago. But the Chinese central bank is the main regulator of the market, and only just granted them access. Until now, QFII's could only invest in equities and exchange traded bonds.
Remember, bonds are traded in the interbank, exchange market, and over-the-counter (OTC) market in China, but the interbank bond market accounts for 95 percent of all onshore bonds, according to Bank of America's Ting Lu.
For China, developing the bond market has been a way of reducing the risks in the banking sector. For investors, they get to tap into China's bond market, which is the third-largest bond market in the world.
Between August 2012 and February 2013, foreigners' bond holdings have increased 110 percent, from 92 billion yuan to 192.8 billion yuan, according to Lu.
So far, the biggest players here were foreign central banks, renminbi clearing banks, and Renminbi Qualified Foreign Institutional Investor (RQFII). Remember the RQFII is based in renminbi and is geared towards retail investors, while the QFII is based in U.S. dollars and targets institutional investors.
What's more? When China announces reforms, many question whether it will actually follow through with them. This shows that China is serious about loosening its capital controls.
More From Business Insider