PBOC: Financial Market Report (January 2025)
Bond Market: A Thriving Landscape
The Chinese bond market opened 2025 with a bang, issuing a whopping RMB 5102.75 billion worth of bonds in January. This figure is a testament to the market's vitality and diversity. The issuance was spread across various bond types, with treasury bonds leading the pack at RMB 1018.50 billion, followed closely by local government bonds at RMB 557.57 billion, financial bonds at RMB 704.21 billion, and corporate credit bonds at RMB 1279.17 billion. The remaining issuance volume was accounted for by credit-asset-backed securities and interbank certificates of deposit (CDs).
By the end of January, the total outstanding bonds held in custody had reached an impressive RMB 178.2 trillion. This massive figure was primarily attributed to the interbank bond market, which held RMB 156.9 trillion, while the exchange bond market accounted for RMB 21.3 trillion. The distribution of bond types within these markets paints a picture of a well-diversified financial landscape.
Trading Dynamics: The Pulse of the Market
The interbank bond market, often considered the heartbeat of China's financial system, saw a notable decline in cash bond trading turnover in January. The turnover decreased by 10.1 percent year on year and 4.4 percent month on month, settling at RMB 26.0 trillion. Despite this dip, the daily average turnover remained substantial at RMB 1.4 trillion. The majority of transactions were concentrated in trades between RMB 5 million and RMB 50 million, which made up 49.0 percent of the total. Trades exceeding RMB 90 million accounted for 44.8 percent, highlighting the significant volume of high-value transactions.
The exchange bond market, though smaller in comparison, also showed activity with a turnover of RMB 2.3 trillion, averaging RMB 126.0 billion daily. The commercial bank over-the-counter (OTC) bond market, though not as massive, recorded 66,000 transactions with a turnover of RMB 55.48 billion. These figures collectively illustrate the dynamic nature of China's bond market, where trading activities are both diverse and substantial.
International Participation: A Growing Attraction
China's bond market continues to draw the attention of international investors. By the end of January, overseas institutions had amassed holdings worth RMB 4.2 trillion, constituting 2.3 percent of the total outstanding bonds in custody. The lion's share of these holdings, RMB 4.1 trillion, was in the interbank bond market.
Breaking it down by bond type, overseas institutions held RMB 2.0 trillion in treasury bonds, which is 48.8 percent of their total holdings. They also held RMB 1.1 trillion in interbank CDs and RMB 0.9 trillion in policy bank bonds. This level of international participation underscores the growing global appeal of China's bond market, driven by factors such as attractive yields and diversification benefits.
Money Market: The Liquidity Landscape
The money market in January exhibited significant changes. The interbank lending market saw a substantial decline in transactions, totaling RMB 5.1 trillion, a drop of 53.1 percent year on year and 38.4 percent month on month. Bond repo transactions also experienced a downturn, decreasing by 34.3 perzcent year on year and 34.2 percent month on month to RMB 109.8 trillion. Repo transactions of exchange-traded standardized bonds fell by 4.9 percent year on year and 18.1 percent month on month to RMB 43.0 trillion.
Interest rates in the money market showed upward trends. The monthly weighted average interest rate on interbank lending stood at 1.86 percent, up by 29 basis points from the previous month. The rate on pledged repos was 2.16 percent, an increase of 51 basis points month on month. These shifts reflect the evolving liquidity conditions and interest rate dynamics within China's financial system.
Bill Market: The MSMEs' Playground
The bill market in January was a bustling arena of activity. Commercial drafts accepted totaled RMB 3.0 trillion, while those discounted amounted to RMB 2.0 trillion. By the end of January, the outstanding amount of accepted commercial drafts stood at RMB 19.9 trillion, and those discounted registered RMB 1z4.5 trillion.
Micro, small, and medium-sized enterprises (MSMEs) were the dominant players in this market. A total of 109,000 MSMEs issued bills, accounting for 93.5 percent of all issuing enterprises. The bills issued by MSMEs reached RMB 2.1 trillion, representing 70.0 percent of the total bill issuance. Among all enterprises that discounted bills, 117,000, or 97.0 percent, were MSMEs. The bills they discounted registered RMB 1.6 trillion, accounting for 79.6 percent of the total amount of discounted bills. This highlights the crucial role of MSMEs in driving market activity and underscores their significance in China's financial ecosystem.
Stock Market: A Mixed Bag
The Chinese stock market presented a mixed picture in January. The SSE Composite Index closed at 3250.6, marking a decline of 101.2 points, or 3.0 percent, from the previous month. The SZSE Component Index also saw a drop, closing at 10156.1, down by 258.5 points, or 2.5 percent, month on month. The average daily turnover on the Shanghai Stock Exchange fell by 24.1 percent month on month to RMB 480.97 billion, while that on the Shenzhen Stock Exchange declined by 25.8 percent month on month to RMB 710.96 billion. These declines reflect the cautious sentiment among investors, influenced by a combination of macroeconomic factors and market-specific conditions.
Bond Holders: The Power Players
The interbank bond market is dominated by a select group of powerful players. As of the end of January, there were 3,988 incorporated institutions in this market, all of which were financial institutions. Among them, 2,111 were holders of non-financial debt financing instruments.
The top 50 investors, including publicly offered funds, large state-owned commercial banks, and trust companies, held 52.1 percent of the total bond holdings. The top 200 investors held an even more substantial 84.0 percent. The distribution of holdings for non-financial debt financing instruments was relatively concentrated, with the largest number of holders for a single instrument being 117 and the smallest being 1. The average and median numbers of holders were 13 and 12, respectively, and 87.0 percent of non-financial debt financing instruments were held by no more than 20 investors. This concentration suggests a high degree of market influence by a relatively small number of major players, which can have implications for market liquidity and stability.
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