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CAPITAL MARKET DEVELOPMENTS IN CHINA
by Ricco Zhang, Mushtaq
Kapasi and Yanqing Jia
Capital market regulatory developments in China Green bond catalogue
On 21 April, the People’s Bank of China (PBOC), the National Development and Reform Commission (NDRC) and China Securities Regulatory Commission (CSRC), who have all issued regulations on green bonds in China, jointly issued the Green Bond Endorsed Project Catalogue (2021 Edition). It replaces the two prevailing sets of guidelines, creating a unified national definition of “green” for green bonds in China. The 2021 Project Catalogue applies from 1 July to all types of green bonds in the domestic market. The most significant change in this new edition of the catalogue is removing clean utilisation of coal and oil from the list of eligible projects. The new catalogue reflects China’s determination to move towards further convergence with international standards in the green finance market, and will be a key reference for the IPSF taxonomy working group along with the EU Taxonomy to develop a Common Ground Taxonomy.
Sustainability-linked bonds
Advised by ICMA, NAFMII published its Q&A on sustainability-linked bonds on 28 April. The Q&A is consistent with and complements the SLBP to guide issuers in China’s interbank bond market, and includes some additional features reflecting the local context. Since then, a few onshore Chinese SLBs (following both the NAFMII Q&A as well as the SLBP) have been successfully priced, with more in the pipeline.
Quarterly review of banks’ green finance performance
On 9 June, PBOC published The Green Finance Evaluation Framework for Banks. The framework replaces the previous 2018 version and expands the evaluation scope from green loans to the wider concept of green finance, covering green loans and bonds while leaving room to include other green products in the future. PBOC will score banks based on quantitative metrics related to green loan and green bond holdings and qualitative aspects including implementation progress of macro green finance policies as well as the banks’ own green finance strategy, disclosure, risk management measures. The evaluation results will affect banks’ rating classification at PBOC and be integrated in PBOC’s toolkit of policies and prudential management of banks.
Legislative basis for netting in the proposed Futures Law
On 29 April, China’s National People’s Congress published the draft Futures Law for consultation. While the draft Law is applicable to derivatives, it provides support for the recognition of netting under master transaction agreements and a potential precedent for similar legislation applicable to other types of transactions such as repo.
Blockchain and digital assets
The Ministry of Industry and Information Technology published a guiding opinion in support of application and development of blockchain technology on 7 June. On the other hand, Chinese regulators, local governments and associations have warned of the risks associated with cryptocurrencies and reiterated the ban on cryptocurrency transactions.
Credit derivatives
NAFMII revised its rules on Credit Risk Mitigation instruments (similar to credit default swaps in the international markets) on 15 April, aimed at improving their trading and settlement mechanisms.
Foreign access to China’s interbank bond market
A “dealer pay model” under the Bond Connect Scheme was launched on 24 May, allowing global investors to request price quotations from Bond Connect market makers with the trading fee built into the bond price, ie an all-in-price calculation upon trade execution.
Removing requirement to report initial bondholding
On 2 April 2021, PBOC published Announcement No. 4 [2021] for the interbank bond market, removing the requirement for bond issuers and lead underwriters to report the list of initial holders and their holdings.
