Opinion | China’s crackdown on Big Tech firms isn’t scaring away bond investors

Beijing’s bid to rein in the power of tech firms over anticompetitive behaviour and privacy concerns has not shaken the Chinese bond markets

Data shows it still pays to bet on China, perhaps a tad more selectively and in a geopolitically sensitive manner, just as investors in Chinese bonds continue to do

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A visitor walks past a booth for Chinese e-commerce firm Meituan at a trade fair in Beijing on September 3, 2021. Photo: AP

Published: 7:00am, 10 Sep 2021Updated: 1:36pm, 21 Sep 2021

China’s recent bid to crack down on Big Tech sent shares of firms such as Didi, Meituan, New Oriental Education, Pinduoduo and Tencent into a tailspin. Equity market prices plunged and adverse commentary emerged in the Western media.

Do these events foretell doom for foreign investors in China? Do these changes have negative implications for Chinese equities in general? How about the corresponding bond markets? Were they also sending out similar signals?

The issue is more complex than many Western commentators have concluded. The evolving scenario requires a nuanced examination of the issues over the long term, particularly given the Chinese bond market’s less conspicuous response to the crackdown.

China is now the second-largest bond market in the world. According to investment consultancy Seafarer, it is a US$15 trillion behemoth, second only to the United States, which is at US$33.9 trillion as of December 2020.

The same report estimates that China’s corporate bond market is US$5.3 trillion in size. While it is still dominated by domestic players, international investors’ appetite for Chinese bonds is growing with loosened government regulations, the set-up of Bond Connect in July 2017 and greater transparency.

For example, the interbank bond platform used for trading Chinese bonds – the China Foreign Exchange Trade System (CFETS), which is an arm of the Chinese central bank – requires every bond transaction be recorded throughout the day.

That level of data capture is similar to that of the Trade Reporting and Compliance Engine platform. Developed by the Financial Industry Regulatory Authority, it has been a key tool in recording all secondary market transactions in the US, although the data releases in China are not yet on a tick-by-tick basis.