On Thursday, September 24th, US-China Series and US China Business Council hosted a half-day virtual forum on the future of Chinese capital markets. We had panels on the RMB Bond Market, Global Macro Opportunities, Hong Kong's role in Chinese capital formation, and a fascinating discussion on the history and legality behind the future of Chinese listings on U.S. exchanges. #

As fate would have it, September 24th was also when FTSE Russell announced that it would include Chinese government bonds (CGBs) to its flagship WGBI index. Estimates from Goldman Sachs predict that the eventual weighting will be 5.7%, which implies $140bn of inflows over the next several years based on the approximately $2.5tn of funds that are benchmarked to this index.

Why should this matter to everyday investors? Most U.S. and European investors have tiny allocations to China, and few outside of the mainland have an exposure that reflects China's economic might. The global monetary policy response to COVID-19 has solidified the era of zero and negative interest rates, and this announcement shines a light on the key advantage of holding Chinese fixed income, which is yield. While the yield advantage that Chinese bonds have over the rest of the developed world didn't play a role in the decision by FTSE to include China, it is the critical narrative to the global investment community that is starved for high-quality sovereign returns.