Japan’s MUFG Bank obtains bond settlement agent license in China

TOKYO — Japan’s MUFG Bank has received a license from the People’s Bank of China to act as a settlement agent in the country’s interbank bond market, Nikkei has learned.

Overseas investors are in principle required to use transaction agents to directly trade in the bond market in mainland China. MUFG Bank has become the first Japanese lender to obtain the license from China’s central bank and the eighth foreign one to do so after banks including JPMorgan Chase and HSBC Holdings.

Japanese investors have faced high hurdles in directly entering the bond market on the mainland as they have had to go through overseas banks to carry out complex prior registration and provide buy and sell instructions in a foreign language. Now, if they have an account with MUFG Bank, they can carry out transactions on instruments such as central and local government bonds and bank debentures with Chinese investors one-on-one in Japanese.

Most bond trades by Japanese investors have so far been carried out through Hong Kong-based Bond Connect. The number of transaction counterparties are limited to 10 companies, with the majority short-term transactions. Its total outstanding investment balance is about 10% that of direct trades on the mainland by foreign investors. MUFG Bank aims to offer its services to long-term investors, including life insurers and pension funds, and help expand their investments into the mainland market.

The outstanding investment in the Chinese bond market by foreign investors totals some 2.3 trillion yuan ($325 billion), of which the portion held by Japanese investors stands at about 100 billion yuan. Chinese authorities are believed to be aiming to help the market stabilize and grow by granting the license to MUFG Bank amid uncertainties surrounding the market outlook due to the spread of the new coronavirus and escalating U.S.-China friction.

Japanese banks are increasing their presence in China. Sumitomo Mitsui Banking on June 9 announced it has issued yuan-denominated “panda” bonds in China, becoming the third Japanese bank to do so.

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