Funding in China

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Funding in China

CDB began market-based funding in September 1998 and achieved fully market-based bond issuing by 2000. Through full market-based funding system reform, CDB has connected government credit and market forces. It has, in accordance with the national economic and social development strategy, given play to its advantage and role in longer-term investment and financing, mobilized and guided social capital to serve the state's major longer-term development strategy, and made new contributions for the economic and social development in China.

CDB financial bond issuance is subject to approval by the State Council and regulation by the PBoC. According to documents issued by the State Council and regulations of the CBRC, the risk weighting of CDB financial bonds bought by commercial banks is 0%, which also serves as the basis for regulating CDB bond investments by securities and insurance institutions.

While CDB financial bonds are mostly issued on the interbank bond market, other innovative new channels have been constantly developed. In 2013, CDB was approved by the PBoC to issue financial bonds in Shanghai Stock Exchange as a pilot initiative. In 2014, CDB started selling financial bonds to individual and non-financial institutional investors through commercial banks with the approval of the PBoC. As of the end of June 2015, the bank has issued an aggregate of RMB 11.8trn worth of RMB financial bonds in China, of which RMB 6.6trn were still outstanding.

The registration, custody and payment of principal and interest concerning CDB bonds are conducted through China Central Depository & Clearing Co., Ltd. and China Securities Depository & Clearing Co., Ltd. to ensure secure and timely principal and interest payments.

Maturities of CDB bonds vary from three months to 50 years, including fixed rate and floating rate bonds (pegged to 1-year time deposit or Shibor) and bonds with options, making CDB a leading innovator in China's bond market. Its bond issuance system incorporates blanket key term benchmark bonds, general financial bonds and targeted financial bonds. Specifically, blanket key term benchmark bonds are issued weekly through tender via the PBoC's bond issue system.

CDB financial bonds receive active subscriptions among various financial institutions, including commercial banks, credit cooperatives, insurance companies, funds, wealth management plans of commercial banks, securities companies and overseas organizations. In 2015, spot CDB financial bond and pledged repo transactions totaled RMB 25.1 trn and RMB 115.8 trn respectively, accounting for 29% and 25% of the total trading volume of spot bonds and pledged repos on the interbank market, making them the most actively traded bonds in China. China Central Depository & Clearing Co., Ltd. compiled a series of CDB bond indexes in 2004, including wealth indexes, full-price and net-price indexes, to objectively reflect the market trends for CDB bonds. Aside from government bonds, CDB bond indexes are the only indexes released for an individual bond issuer in China.

Supported with sovereign credit and first-class market performance, CDB successfully realized securitization of national credit, increasing the depth and breadth of China's bond markets through fruitful innovations, as well as earning the bank an excellent reputation and consolidating its competitive position in the interbank bond market.