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Policy Banks - Why they are unique, and why we like them

With our new series of ESLJ China Insights we intend to explain the Chinese local bond market, how it operates and address the most common questions.

In this second insight we focus our attention on China’s policy banks bonds.

Policy banks are a unique feature to China. They consist of three government-backed banks that have been used since 1994 as the primary channels of financing for the major infrastructure projects in China. They are the Chinese Development Bank (‘CDB’), the Agricultural Development Bank of China (‘ADBC’), and the China Export Import Bank.

Policy Banks are owned by the State Council, which is the top echelon of the Chinese Communist Party – their ownership and structure make them unique. They are wholly owned by the state and, even though they do not have explicit government guarantees, we believe they are essentially sovereign, not only because of the ownership structure, but also because of the critical importance of these institutions in the Chinese development strategy.

Here are some examples to show their relevance within China’s economic growth process.

As defaults by these institutions are very unlikely, their bonds are the most actively traded segment in the Chinese bond market and together with CGBs, are the only types of bonds included or being considered for inclusion in global bond indices.

Below are the main characteristics of policy banks bonds and why we like them:

Next time we will analyse Chinese Central Government Bonds, their risk/return characteristics more in line with high-quality developed markets sovereign bonds than emerging markets’ and their low correlation to other bond markets.


None of the contents of this document should be understood as constituting research on investment matters, or as a recommendations, advice or suggestions, implicit or explicit, with respect to an investment strategy involving the financial instruments discussed, or the issuers of the financial instruments, nor as a solicitation or offer, nor as consulting on investment matters, of a legal, fiscal, or other nature. All the companies of the Intesa Sanpaolo Group, its administrators, representatives, or employees, decline any responsibility (fault-based or otherwise) deriving from indirect damages potentially caused by the use of this communication or its contents, or in any case deriving in relation to this document, nor may they be consequently held liable for any of the above. The information provided and the opinions contained in this document are based on sources considered reliable and in good faith. However no declaration or guarantee is offered by Eurizon SLJ Capital Limited, explicitly or implicitly, on the accuracy, exhaustiveness and correctness of the information, and there is no guarantee that results, or any other future events, will be compatible with the opinions, forecasts, or estimates contained herein.

Views accurate as at the time of publication. Opinions expressed by the authors are their own and do not necessarily reflect those of Eurizon SLJ Capital Limited, Eurizon Capital SGR or the Intesa Sanpaolo Group.
The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.


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