China's Ministry of Finance announced on Thursday that it would lift Corporate Income Tax and Value-added Tax (VAT) on bond interest gained by foreign investors from their investments in China's bonds from Nov. 7 this year to Nov. 6, 2021.
The move is to encourage foreign capital to flow into China's bond market and in line with the country's efforts to further opening up its financial market.
The interest gaps between China's government bonds and the US treasury bonds are narrowing as the Federal Reserve plans to raise rates further, said an analyst from a Chinese state-run bank, "China's government bonds are not as appealing as they used to be in terms of yields."
In the short-term, it will woo more foreign investments in RMB-denominated assets and increase their yields, said Wang Qing, an analyst from the Golden Credit Rating International Co., Ltd. "Foreign investments in China's bonds have slowed down in October when compared with the figure a year earlier hindered by the RMB depreciation and the US interest hikes," he added.
"Under the new tax-free policies, foreign institutional investors are likely to seek China's debenture bonds rather than its government bonds as they offer higher yields," said an investment manager from Beijing.
China's government bonds with a one-year maturity, yield a 2.5-percent rate as of Nov. 21, 2018, according to Wind, a data provider in China, and the US treasury bonds with a one-year maturity, yield 2.67 percent per annum. China's ten-year government bonds' rate is 3.37 percent and it is 3.06 percent for the US treasury bonds.
The move is to encourage foreign capital to flow into China's bond market and in line with the country's efforts to further opening up its financial market.
The interest gaps between China's government bonds and the US treasury bonds are narrowing as the Federal Reserve plans to raise rates further, said an analyst from a Chinese state-run bank, "China's government bonds are not as appealing as they used to be in terms of yields."
In the short-term, it will woo more foreign investments in RMB-denominated assets and increase their yields, said Wang Qing, an analyst from the Golden Credit Rating International Co., Ltd. "Foreign investments in China's bonds have slowed down in October when compared with the figure a year earlier hindered by the RMB depreciation and the US interest hikes," he added.
"Under the new tax-free policies, foreign institutional investors are likely to seek China's debenture bonds rather than its government bonds as they offer higher yields," said an investment manager from Beijing.
China's government bonds with a one-year maturity, yield a 2.5-percent rate as of Nov. 21, 2018, according to Wind, a data provider in China, and the US treasury bonds with a one-year maturity, yield 2.67 percent per annum. China's ten-year government bonds' rate is 3.37 percent and it is 3.06 percent for the US treasury bonds.
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