China debuts first sovereign bond ETF

China saw the launch of the country's first ever exchange-traded fund (ETF) tied to State bonds Monday, a development experts say marks the latest effort by regulators to expand the nascent national debt market.

The product was offered by Guotai Asset Management Co (Guotai AMC) and tracks the 5-year sovereign debt index at the Shanghai Stock Exchange (SSE), according to statements issued by the company Friday.

Chinese financial authorities had mentioned late last year that such a product could be in the works. Hu Jiafu, an official from the China Securities Regulatory Commission (CSRC), said at a press conference in mid-September that China was mulling the introduction of further investment vehicles connected with the bond market, including bond ETFs, as part of plans to draw more capital into debt securities.

Prior to the launch of Guotai AMC's ETF, the CSRC had given its nod on January 5 to Bosera Fund to roll out an ETF connected to the SSE's corporate bond 30 Index, a product which has yet to hit the capital market. The regulator is also currently processing applications for bond ETFs from E Fund Management and Harvest Fund as well, according to the local media.

Currently, there are still less than 10 financial products investing in China's bond market, which has greatly limited access to bond investment, Zhang Yongmin, an executive manager from Qilu Securities, told the Global Times.

The newly-arrived ETF from Guotai AMC will help replenish debt market liquidity and satisfy the growing demand for fixed-income securities emerging now as mainland investors lose patience with the dismal A-share market, Shi Lei, a senior bond analyst from Ping An Securities, told the Global Times.

"Unlike bonds, which buyers might be required to hold for lengthy periods of time, bond ETFs allow capital holders to tap the bond market as easily as the stock market," Shi explained.

According to Guotai AMC's own announcement, its bond ETF can be bought and sold on the same day, making investment moves more flexible and convenient.

"Transaction conditions which are so preferential to investors are rare in China's equity market," Shi added.

At the same time, the low transaction costs associated with the product will also attract retail investors, many of whom are sensitive to price considerations, Zhang said.

Commission fee rates on the newly-issued bond ETF will be set between 0.1 and 0.4 percent, based on the amount being transacted, according to Guotai AMC.

"These figures are much lower than the costs for stock investment, where commission fees could be around 3 to 6 percent," Zhang said.