China - Rising Foreign Demand Amid Deleveraging

China Rising foreign
demand amid deleveraging

Becky Liu
Head, China Macro Strategy, Global Research
Becky.Liu@sc.com; +852 3983-8563
September 2017
Summary
Foreign holdings of China onshore bonds are on track to rise beyond CNY 1tn in Q3-2017 on solid
economic growth, stabilising exchange-rate expectations and more efficient access channels. After
rising 50-100bps YTD, China rates are peaking, but there are no catalysts for a material decline.
Onshore rates may stay range-bound in the near term
Growth may moderate in H2-2017
Funding costs of PBoCs liquidity facilities have reached a new high
Foreign demand is gaining strong momentum

Bond Connect activity is picking up
CNY is likely to exceed CAD and AUD in terms of world reserves allocation in a couple of years
Financial-market deleveraging and deposit migration

Outsourced fund management has shrunk; WMP growth has slowed
Deposit migration limits downside to onshore rates in the long term
Offshore Renminbi (CNH) market outlook

Normalisation of regulations marks the end of ultra-flush CNH liquidity conditions
Asset/liability mismatch supports demand for Dim Sum bonds
Source: Standard Chartered Research 2

Growth may moderate, CPI and PPI inflation could converge in H2
We estimate 2017 real GDP at 6.8%, and Q3 and Q4 growth at 6.7% and 6.6% respectively, slowing from 6.9% in H1
Official GDP versus Bloomberg estimate based on high frequency data (%)
China official GDP (y/y, %) Bloomberg model estimate SCB forecasts

14
12
10
8
6
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
CPI and PPI to converge towards year-end
10 GDP Deflator CPI PPI Deflator forecast

8
6
4
2
0
-2
-4
-6
-8
2000 2001 2001 2002 2003 2004 2005 2006 2006 2007 2008 2009 2010 2011 2011 2012 2013 2014 2015 2016 2016 2017 2018
Source: Bloomberg, Wind, Standard Chartered Research 3

Most local governments on track to meet GDP targets this year
Local governments have largely set similar targets in 2017 vs 2016: 20 similar, 5 higher, 6 lower
In H1, 20 local governments achieved or exceeded growth targets, 11 grew slower than their targets
Local government nominal GDP (CNY tn), and 2016 actual real GDP vs target, %
12 Nominal GDP (CNY tn, 2016) 2016 actual (%) 2017 target (%) Q2-17 GDP (%)
10
-2
-4
Anhui
Guizhou
Jilin
Qinghai
Tibet
Shandong
Zhejiang
Hebei
Xinjiang
Ningxia
Guangdong
Henan
Sichuan
Hubei
Jiangxi
Chongqing
Yunnan
Shanxi
Jiangsu
Hunan
Fujian
Gansu
Guangxi
Shanghai
Shaanxi
Hainan
Beijing
Liaoning
Tianjin
Inner Mongolia
Heilongjiang
Source: Wind, Local Government, Standard Chartered Research 4
Investment has some downside, but consumption should be resilient
FAI new starts are up 2.2% YTD, % y/y Retail sales, real vs. nominal, % y/y
50% 19
40% 17 Nominal retail
15 sales growth
30%
13
20%
11
10% Real retail
9
sales growth
0% 7
-10% 5
Feb-14 Aug-14 Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 2012 2013 2014 2015 2016 2017
Infrastructure FAI has been very strong, % y/y Retail sales breakdown, % y/y
40 Manufacturing Real estate Infrastructure 40 2014 2015 2016 2017 YTD

30
30
20
20 10
0
10 -10
Petroleum
Cosmetics
Furniture
Food, Beverag
Daily Use
Communication
Automobile
Clothing, Shoes
Household
Medicine
Gold, Silver and
Construction &
0
Goods
Electric
Decoration
Appliance
Jewelry
-10
Nov-12
Nov-13
Nov-14
Nov-15
Nov-16
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Source: Bloomberg, Wind, Standard Chartered Research 5

Capital outflow pressure has subsided
Capital outflow pressure has declined, but not ODI was down 46% and FDI down 27% in H1
diminished, CNY bn FDI and ODI, YTD, USD bn
50 Monthly estimated capital outflows 0 180
ODI FDI
12M rolling total
160
-200
0
140
-400 120
-50
100
-600
80
-100
-800 60
40
-150
-1,000
20
-200 -1,200 0
May-
May-
Aug-
Apr-16
Apr-17
Jun-16
Feb-16
Mar-16
Jul-16
Feb-17
Mar-17
Jun-17
Jul-17
Sep-16
Oct-16
Dec-16
Nov-16
Jan-17
Oct-15
Oct-16
Apr-15
Apr-16
Apr-17
Jan-15
Jan-16
Jan-17
Jul-15
Jul-16
Jul-17
Source: Bloomberg, Standard Chartered Research 6

External debt rebounded; CNY appreciated vs USD and the basket
External debt position has rebounded to 2013 levels CFETS index

External debt as % of GDP CFETS CNY Index currency weighting, End-2014=100
17 108
FCY+CNY
106
15
104
13
13.0 102
12.2
11 100
CFETS
RMB Index
FCY 98
9 8.8
96
7
6.8 94
5 92
2011
2015-Q1
2016-Q1
2017-Q1
2015-Q2
2015-Q3
2015-Q4
2016-Q2
2016-Q3
2016-Q4
2007
2005
2006
2008
2009
2010
2012
2013
2014
Oct-15
Oct-16
Apr-15
Apr-16
Apr-17
Jun-15
Aug-15
Feb-15
Feb-16
Jun-16
Aug-16
Feb-17
Jun-17
Aug-17
Dec-16
Dec-14
Dec-15
Source: CEIC, CFETS, Bloomberg, Standard Chartered Research 7
PBoC unwound USD reserve requirement on long FCY-CNY forward trades
Effective 11 September 2017, onshore FCY-CNY On-offshore DF curves may converge further
FX forward trades will no longer be subject to On-offshore DF point, and the curve with the USD
USD-denominated reserve requirements reserve charges (pips), as of 19 September 2017
The following types of trades will be exempted from 1,600
reserve requirements: CNY DF CNH DF CNY DF + 300pips
Corporates RHS FX flows via onshore banks 1,400
Foreign investors RHS FX flows via offshore banks
Other transactions of a similar nature 1,200
From October 2015 to 10 September 2017, banks were

required to set aside reserve payments for their onshore 1,000
RHS trades on behalf of their clients
The reserves payments were 20% for forward 800
transactions and 10% for option transactions, and the
funds would pay 0% subject to a 1Y lock-up 600
Unwinding reserve requirements could lead to:

400
Further convergence of on-offshore DF curves
A boost to foreign investment in onshore bonds 200
Potential acceleration of FX reforms
0
1W 1M 2M 3M 5M 6M 9M 12M

Onshore bonds Yields have likely peaked
Onshore bond-market growth has moderated so far in 2017
YTD-2017 issuance is up 5% from the same Outstanding bond market grew 11% in Jan-Aug
period last year; 2017 supply to rise only 2-5% 2017, slower than 23% CAGR in 2011-16
from last years CNY 37-38tn CNY tn
Gross issuance by type, CNY tn 80
40 CGBs LGBs PBoC Bills NCDs PFBs Credits
CGB Local govt PBoC bills
70
35 NCD Policy bank Credits
60 24
30
50
25
40 13
20
30 8
15
10 20
14
5 10
13
0 0
2010 2011 2012 2013 2014 2015 2016 2017 2010 2011 2012 2013 2014 2015 2016 Aug-
YTD* 2017
* As if 19 Sep 2017
10
Source: Wind, Standard Chartered Research
Primary demand showing renewed weakness
Demand for CGBs has declined again Demand for PFBs weakened in August
Historical bid-to-cover ratio for CGB auctions (x) Historical bid-to-cover ratio for PFB auctions (x)
3Y 5Y 10Y average 3Y 5Y 10Y average
5.0 5.0
4.5 4.5
4.0 4.0
3.5 3.5
3.0 3.0
2.5 2.5
2.0 2.0
1.5 1.5
May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17
Source: Wind, Standard Chartered Research 11

Money-market rates have risen more than 50bps YTD
Chinas future policy rate framework The Average money market rates have risen 50bps
interest rate corridor (%) for banks and 7D repo fixing is up 100bps YTD
SLF OMO MLF ERR DR07 (monthly average) FR07 (monthly average)
SLF rates: 5.0

O/N: 3.30%
4.0 7D: 3.45% 4.6
28D: 3.80%
3.5 4.2
3.0 3.8
MLF rates:
2.5
3M*: 2.90% 3.4
OMO reverse repo rates: 6M: 3.05%
2.0 7D: 2.45% 1Y: 3.20% 3.0
14D: 2.60%
1.5 28D: 2.75%
2.6
1.0
2.2
0.5 ERR: 0.72%
1.8
0.0
ON 7D 14D 28D 3M 6M 1Y
Note: as of 19 September 2017; Source: Bloomberg, Standard Chartered Research 12

*Assuming same page of hikes on 3M MLF rate
Funding cost of PBoCs liquidity facilities has risen to new highs
PBoC has boosted liquidity injections since June Cost of PBoCs facilities has risen again
Outstanding PBoC liquidity facilities (CNY bn) Average cost of PBoC facilities (1MMV, %)
9000 3.10
SLF MLF PSL OMO
3.07
8000 3.05 3.04
7000
3.00
3.00
6000
2.95
5000
2.90
4000
2.85
3000
2.80
2000
1000 2.75
0 2.70
Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Feb-16 May-16 Aug-16 Nov-16 Feb-17 May-17 Aug-17
Source: Wind, Bloomberg, Standard Chartered Research 13

Repo leverage has rebounded slightly, but remains off highs
Outstanding repo position reaches a record high, but leverage ratio seems to have peaked
Leverage ratio is calculated as outstanding bonds/(outstanding bonds outstanding repo)
Left: Historical leverage ratio (x); right: Historical outstanding repo (CNY tn)
1.50 1.14 5.0
Exchange leverage (3MMA) Interbank repo outstanding (3MMA)
Interbank leverage (3MMA, RHS) Exchange repo outstanding (3MMA)
4.5
1.45
1.13
4.0
1.40 3.5
1.12
3.0
1.35
1.11 2.5
1.30
2.0
1.10
1.25 1.5
1.0
1.09
1.20
0.5
1.15 1.08 0.0

Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17

Further upside for CGB yields is likely limited
After adjusting for a 25% corporate income tax, CGBs are now yielding higher than benchmark loan
rates. As of Q2-2017, 36% of loans are priced at or below benchmark rates, and 51% are priced at or
below 1.1x benchmark loan rates
8.0 8.0
1Y CGB 10Y CGB
PBoC benchmark lending rate (1Y) PBoC benchmark lending rate (1-3 & 1-5Y)*
7.0 1Y CGB (tax adjusted) 7.0 10Y CGB (tax adjusted)
6.0 6.0
5.0 5.0
4.0 4.0
3.0 3.0
2.0 2.0
1.0 1.0
0.0 0.0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
*Benchmark lending (1-3Y) is used before Dec 2014

15
Source: Bloomberg, Standard Chartered Research
CGBs are more attractive than peers on a tax-adjusted basis
Summary of tax treatment of China onshore bonds

For domestic investors For foreign investors
Coupon Capital gain Coupon Capital gain
Type of bonds Income tax + VAT Income tax + VAT WHT + VAT VAT
CGB 0%+0% 25%+0% 0%+0% 0%
LGB 0%+0% 25%+0% 0%+0% 0%
10% (or lower subject to
Policy bank bonds 25%+0% 25%+0% 0%
DTT)+6.34%
10% (or lower subject to
NCDs 25+0% 25%+0% 0%
DTT)+6.34%
Corporate credit 25+6.34% 25%+6.34% 10% (or lower subject to
0%
bonds (25%+3% for asset managers) (25%+3% for asset managers) DTT)+6.34%
For onshore investors, CGBs are the highest- For foreign investors, CGBs yield higher than
yielding top-tier onshore bonds after tax PFBs but lower than NCDs and credits after tax
Tax-adjusted yield for domestic financial investors (%) Tax-adjusted yield for foreign investors in CIBM (%)
4.0 4.5
CGB
AAA credit
3.5 NCD AAA credit 4.0 NCD
CGB
3.0 PFB 3.5
PFB
2.5 3.0
2.0 2.5
3M 6M 9M 1Y 3Y 5Y 7Y 10Y 3M 6M 9M 1Y 3Y 5Y 7Y 10Y
As of 19 Sep 2017 Note: Table shows only taxes imposed by China on institutional investors; individual investors are exempt from VAT, but personal income 16
tax is applicable; foreign investors may still be subject to additional tax charged locally; Source: Bloomberg, MoF, Standard Chartered Research
New types of LGB project bonds have been introduced
MoF is encouraging local governments to issue bonds to finance public projects that generate stable
income; two types have been introduced, one backed by land reserves and the other by toll roads
The first batch of land reserve project bonds of CNY 9bn was issued by the Beijing municipal government on 14 July
The first toll road project bond of CNY 63bn was issued by the Guangdong municipal government on 11 August
As of 19 September 2017, 14 municipal governments or cities had issued CNY 153bn of land reserve project bonds, and 5
municipal governments or cities had issued CNY 25bn of toll road project bonds
Characteristics of land reserve project bonds and toll road project bonds
Land reserve-backed Toll road-backed

Municipal governments or cities with independent economic planning ()
Issuer
Issue name shows the prefecture-level city to which the proceeds go
Development of toll-road projects, including national highways,

Use of proceeds Development of underlying projects
local highways and other toll roads
- Revenue generated by the transfer of land usage rights,

- Revenue from underlying toll-road projects
and/or revenue from land income funds
Source of repayment - Cannot be from other local government revenue sources, such as
- Cannot be from other local government revenue sources,
taxes
such as taxes
Tenor Usually 5 years Usually 15 years
Quota Share project bond quota approved by the State Council and set at the beginning of the year (CNY 800bn for 2017)
Project details Offering memorandum lists project details, including project name, location, investment size and revenue projections
Source: MoF, Chinabond, Standard Chartered Research 17

Summary of 7-day interest rates in the onshore interbank market
OMO 7-day repo rate DR07 fixing FR07 fixing DR07 average FR07 average RP07 R07D
Bloomberg
PBOC7P Index CNRRDR07 Index CNRR007 Index CHBM7D Index N/A RP07 Index N/A
Ticker
Latest level
2.45 2.81 3.44 2.94 3.33 2.88 3.54
(19 September)
Terms 7 day 2-7 days 2-7 days 2-7 days 2-7 days 2-7 days 4-7 days
Median of pledged repo R07D is published

Median of all pledged Weighted average of Weighted average of
Interest rate at which transactions by Live transactions by CCDC and
repo rates between repo transactions all pledged repo
PBoC injects liquidity depository institutions rates between functions similarly
Definition 09:00 and 11:30 local between deposit- taking transactions
into the market via 7-day between 09:00 and depository to R007,
time in interbank institutions in interbank with terms of
reverse repo 11:30 local time in institutions except fewer terms
market market 2-7 days
interbank market included
Transactions between
Only transactions
Primary dealers for Only transactions all financial institutions, Only transactions
All institutions trading between deposit-
Counterparty OMOs (48 financial between depository including banks between deposit- taking Same as R007
in interbank market taking
institutions in 2017) institutions and non-bank financial institutions
institutions
institutions (NBFIs)
Backed by only rates

CGBs, PBoC bills, and Both rates and credit Backed by only rates Both rates and credit Backed by only Both rates and
Collaterals bonds (CGBs, PFBs
PFBs bonds bonds bonds rates bonds credit bonds
and LGBs)
Publishing On dates with reverse

Once a day Once a day Once a day Ongoing Once a day
interval repo operations by PBoC Ongoing throughout the
throughout the
day
day
Publishing time Before 09:30 At 11:30 At 11:30 After 18:00 After 17:00
Source: CFECTs, Bloomberg, Standard Chartered Research 18

Foreign investment in China bonds gaining
momentum
Foreign holdings of China assets up the most since 2014
Foreign holdings of onshore assets have returned to 2015 levels, CNY bn

Deposits: CNY 1.18tn (+265bn YTD); Loans: CNY 818bn (+201bn); Equities: CNY 868bn (+219bn); Bonds:
CNY 892bn (+39bn);
Equities Bonds Loans Deposits
5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17

Yields are attractive to foreign investors
Nominal yields of LIBOR and USTs (in USD After-swap yields of CGBs and CDBs in USD
terms, %) and CGBs and CDBs (in CNY terms, %) terms, compared with LIBOR and USTs (%)
Libor UST CGB CDB Libor UST CGB (after swap) CDB (after swap)
5.0 3.0
4.5
4.0 2.5
3.5
3.61 3.62
3.48
3.0 2.0 2.13
3.03 2.03
2.5 1.75 1.92 1.86 1.89
2.0 1.5
1.33
1.5
1.0 1.0
0.5
0.0 0.5
3M 6M 1Y 3Y 5Y 7Y 10Y 3M 6M 1Y 3Y 5Y 7Y 10Y
Note: as of 19 September 2017 Source: Bloomberg, Standard Chartered Research 21

Bond Connect offers easier access to foreign investors
Started in July 2017, the Bond Connect has a simpler initial set-up, but offers a narrower scope of
access to onshore interest rate derivatives and repos in the initial stage. 164 foreign investors have set
up under the programme as of end-August 2017
QFII/RQFII CIBM Bond Connect

Cash bonds
- Interbank
- Exchange P
Bond repos Note 1 Note 3
Bond lending P
Bond forwards P
Onshore FX
- Spot Note 2 P
- Forwards P
- Swaps P
- Options P
Onshore interest rate derivatives
- IRS P
- CCS P
- FRA P
- CGB futures
Note 1: Only public-sector investors have access to the onshore repo market under CIBM, while private-sector investors do not have access at this stage
Note 2: QFII investors convert from FCY to CNY via onshore spot upon entry, and the other way around upon withdrawal. Beyond that, QFII/RQFII investors have little access to onshore FX products
Note 3: Repos, bond lending, bond forwards, interest rate swaps and forward rate agreements may be offered in the future.
Source: PBoC, CSRC, SAFE, Media reports, Standard Chartered Research 22

Bond Connect activity is picking up
Bond Connect registered strong trading volume of CNY 7.05bn on the first day
However, trading volume in subsequent days of trading may have declined owing to technical issues
Data from Shanghai Clear (SHC, the settlement agent for NCD/CP/SCP/MTN bonds) suggests that trading volume,
especially of NCDs, has picked up materially since August
CCDC (the settlement agent for CGB/PFB/Enterprises bonds) has not released any data after the first day of trading
Weekly turnover rose to CNY 14.9bn in September Number of trades per week has risen over 80
Bond Connect turnover through SHCH (CNY bn) # of Bond Connect trades through SHCH
16 90
NCD SCP CP MTN Panda NCD SCP CP MTN Panda
14 80
12 70
60
10
50
8
40
6
30
4
20
2 10
0 0
3-Jul 10-Jul 17-Jul 24-Jul 31-Jul 7-Aug 14-Aug21-Aug28-Aug 4-Sep 11-Sep 3-Jul 10-Jul 17-Jul 24-Jul 31-Jul 7-Aug 14-Aug21-Aug28-Aug 4-Sep 11-Sep
Source: CFETS, SHCH, Standard Chartered Research 23

340 foreign entities have gained access to the interbank market
Monthly change in foreign purchases of onshore 696 foreign investors/products have entered Chinas
interbank bonds by type (CNY bn)* onshore interbank bond market by August 2017,
including 62 public-sector investors and 278 private-
100
CGBs PFBs Other interbank bonds Exchange traded bonds sector investors. The breakdown:
80
62 public-sector investors (CB, SWF, Multilaterals)
117 banks
60 109 asset managers/funds
40 23 insurance companies
27 institutional brokerages
20
2 others
0
Foreign investors bought 15% of net CGB issuance in 2016
-20 Annual net purchases of CGB, % of total net issuance
Banks Funds Insurance Special Foreign investors
-40 members
140%
120%
-60 100% 15%
80% 13%
60%
-80 40%
20% 66%
-100 0%
-20%
Oct-15
Apr-16
Oct-16
Apr-17
Jan-16
Jan-17
Mar-16
Feb-16
Jun-16
Feb-17
Mar-17
Jun-17
Sep-16
Jul-15
Sep-15
Dec-15
Jul-16
Dec-16
Jul-17
Nov-15
Nov-16
Aug-15
Aug-16
Aug-17
May-16
May-17
2007
2015
2001
2002
2003
2004
2005
2006
2008
2009
2010
2012
2013
2014
2016
2011
* Exchange traded bonds data as of Q2-2017 Source: Wind, CDC, PBoC, CFETS, Standard Chartered Research 24
Foreign holdings of onshore bonds reached a new high in Q2
Foreign holdings of onshore bonds rebounded to Foreign ownership by type of bonds (% of total)
CNY 892bn in Q2 from CNY 853bn in Q1 (CNY bn)
1000 CGB PFB 4.0% Overall market size CGB
PFB Others 3.91%
Other interbank bonds Exchange-traded bonds
900
50 3.5%
53 47
800 86
71 72 3.0%
95 65
700 103
100 173 2.5%
600 307
185 154 305 291 2.43%
500 95 111 2.0%
400 104 208

249 246 1.5%
239
300 1.42%*
198 1.0%
424 420 449
200
318
221 235 248 0.5%
100 163 0.45%*
0 0.0%
2014-06
2014-12
2015-06
2015-12
2016-06
2016-12
2017-03
2017-06
2015-12
2017-06
2014-06
2014-12
2015-06
2016-06
2016-12
2017-07
2017-08
*Exchange data as of June 2017; Assume foreign holding of exchange-traded bonds remains the same level in July & August
25
Source: PBoC, Wind, Standard Chartered Research
CNY assets to account for over 1% of 2017 world reserves
Currency breakdown of the worlds allocated reserves Reserve allocation in CNY may reach the allocation
According to COFER data as of Q1-2017 levels of CAD and AUD in a couple of years
Historical share of allocated reserves (%)
CHF Others
CAD0.2% 2% 4.0%
AUD
2%
2%
3.5% GBP
GBP
CNY JPY 4% 3.0% JPY
1% 5%
2.5%
2.0%
CNY
EUR CAD
19% 1.5%
USD
65% AUD
1.0%
0.5%
CHF
0.0%
Q4 2015
Q2 2016
Q1 2014
Q2 2014
Q3 2014
Q4 2014
Q1 2015
Q2 2015
Q3 2015
Q1 2016
Q3 2016
Q4 2016
Q1 2017
Q2 2017
Q4 2017
Q2 2018
Q1 2018
Q4 2018
Q1 2019
Q2 2019
Source: IMF, Standard Chartered Research 26
Potential index inclusion and impact
We expect USD 220-240bn of potential passive inflows to be driven by inclusion in global bond indices
Bloomberg-Barclays announced the inclusion of China onshore bonds in two newly created indices since 1 March 2017
(1) The Global Aggregate + China Index (China weighting: 4.9%)
(2) The EM LCY Government + China Index (China weighting: 38.2%, or 10% if capped)
Citibank has included China onshore bonds in a number of parallel indices since February 2018
(1) Emerging Markets Government Bond Index (EMGBI) (China weighting: 52.45%, or 10% if capped)
(2) Asian Government Bond Index (AGBI) (China weighting: 56.56%, or 20% if capped)
(3) Asia Pacific Government Bond Index (APGBI) (China weighting: 47.33%)
(4) WGBI-extended (China weighting: 5.03%)
Major global index families that are most relevant for inclusion of China bonds
Bloomberg Barclays Global JP Morgan Government Bond- World Government Bond Index**
Aggregate Index Emerging Market Index (GBI-EM) (WGBI)
Tracking AUM USD 2tn USD 200bn c. USD 2tn
Expect potential inflows USD 100-110bn USD 20bn USD 100-110bn
Investment-grade sovereign and
Instruments Investment-grade government bonds Investment-grade sovereign bonds
corporate bonds
Potential weighting on China
5-5.5%* 10% (capped) 5-5.5%
inclusion
Bloomberg ticker LEGATRUU Index JPMX SBWGU Index
Source: Standard Chartered Research
*Note: Current China weighting in the Global Aggregate+China index is 4.9%, including only CGB and PFBs. Credit bonds may be added in the future 27
**Note: London Stock Exchange (LSE) completed the acquisition of Citis yield book and indices on 1 September 2017
Financial-market deleveraging progresses
Deleveraging aims to narrow credit growth-nominal GDP gap
China debt/GDP has risen to 264% of GDP in 2016 M2 growth has slid to a historical low, but credit
from 248% in 2015, % of GDP growth remains high at above 14% and above
nominal GDP growth, %
300 18
Households Non-financial corporations
Financial institutions Central government
Local government Revised TSF
250 16
32
36
37
31 28 14
200 29 27
26 27 22
26 22 27
21
21 27 GDP
17 21 20 18 19 12
150 19
19 23 19
26
27 10
100 124 137
115 115 M2
103 105 107
99
8
84
50
33 36 39 45 6
23 27 28 30
18
0
2008 2009 2010 2011 2012 2013 2014 2015 2016
Note: Revised TSF adds back credit extension under local-government debt swaps; Source: Wind, CEIC, Standard Chartered Research 29
3Cs have released a series of tightening regulations since March
Regulator Items Regulation name issue date

Notice on examination of the responsibilities of board of directors, board of supervisors, and senior leaders in
1 3/23/2017
banking sector ()
Notice on special governance of illegal activities in the banking sector (
2 3/29/2017
)
Notice on special governance of arbitrage activities in the banking sector ("
3 3/29/2017
")
Notice on special governance of misconduct in the banking sector (
4 4/6/2017
)
CBRC
Guidance on improvement of banking sector to support real economy (
5 4/7/2017
)
Notice on governance on market misconduct in the banking sector (
6 4/7/2017
)
7 Guidance on banking-sector risk control () 4/7/2017
8 Notice on filling loopholes and enhancing efficiency of regulation () 4/10/2017
Notice on strengthening supervision and governance on market misconduct in insurance sector (

9 4/28/2017
)
Guidance on improving the insurance sector to help support the real economy(
10 5/04/2017
CIRC )
Notice on filling loopholes and enhancing governance in the insurance sector (
11 5/05/2017
)
Notice on special risk governance of capital investment in the insurance sector (
12 5/09/2017
)
Special governance on cash polling in asset management products of securities houses (reported by local
CSRC 13 5/08/2017
media)

Refinements to the Macro-Prudential Assessment (MPA) system
MPA has been effective since the start of 2016. It aims to improve counter-cyclical measures by
capturing a broader range of credit growth and implementing an assessment system
The assessment is based on a banks situation in seven areas, measured by 14 key indicators
Areas of assessment Indicators and their respective weightings
1 Capital and leverage CAR (80%), leverage (20%), loss-absorbing ability (regulator to add)
Broad credit (60%, within range of M2 target 20%), entrust loans (5%), inter-
2 Assets and liabilities
bank liabilities (25%, required to be <33% of total liabilities)
Liquidity coverage ratio (LCR, 40%), net stable funding ratio (NSFR, 40%),
3 Liquidity
compliance with RRR system (20%)
4 Pricing activities Pricing of interest rates(100%)
5 Asset quality NPL ratio (50%), provision coverage ratio (PCR, 50%)
6 Foreign debt Risk-weighted foreign debt (100%)
7 Credit policy Credit policy implementation (70%), central bank fund deployment (30%)
Banks are placed under three categories (A, B and C) based on the above assessment. Banks with higher
scores enjoy higher interest rates for their reserves with the central bank
Reserve rate adjusted under different circumstances
Categories Period of strong macro- Extreme
Normal situation prudential control situation
A (incentive policy) scored over 90 in 7 all fields x1.1 x1.2 x1.3
B (natural policy) all others x1.0 x1.0 x1.0
C (restraint policy) failing (<60) 1 or 4; or failing two out of 2 3 5 6 7 x0.9 x0.8 x0.7
Source: PBoC, Standard Chartered Research 31

Cost of bank loans is rising
Loans priced at or below benchmark were 12ppt Average loan rates rebounded 40bps in H1-2017
lower, while 1.3x or above 10ppt higher in H1 Average loan rate by type (%)
Loan rates versus PBoC benchmark rate (% of total)
All loans Corporate loans
8.0 Bill Financing Mortgage loans
below benchmark at benchmark
above benchmark (1,1.5] above benchmark (>1.5) 7.5
100
90 7.0
80 6.5
70 6.0
60
5.5
50
5.0
40
4.5
30
4.0
20
10 3.5
0 3.0
Q2-14
Q4-15
Q1-13
Q2-13
Q3-13
Q4-13
Q1-14
Q3-14
Q4-14
Q1-15
Q2-15
Q3-15
Q1-16
Q2-16
Q3-16
Q4-16
Q1-17
Q2-17
Q4-14
Q1-15
Q2-15
Q3-15
Q4-15
Q1-16
Q2-16
Q3-16
Q4-16
Q1-17
Q2-17

Borrowing costs from alternative channels have declined
Loans rates trending in line with rates of bonds Private lending and P2P rates have declined
and bills, % %
7.0 20 Wenzhou lending rate P2P rate
Average loan rate
6.5 Discount bill rate (RHS)
AAA corp bond issuance rate (RHS) 18
6.0
5.5 16
5.0
14
4.5
12
4.0
3.5 10
3.0
8
2.5
2.0 6
2015-07
2015-01
2015-03
2015-05
2015-09
2016-01
2016-03
2016-05
2016-07
2016-09
2017-01
2017-03
2017-05
2017-07
2016-11
2015-11
2017-03
2015-01
2015-03
2015-05
2015-07
2015-09
2016-01
2016-03
2016-05
2016-07
2016-09
2017-01
2017-05
2017-07
2015-11
2016-11
Net issuance from corporates has slid to a record low
Corporate credit net issuance is down sharply Bond funding cost has surpassed that of loans in
Annual gross and net issuance (CNY bn) Q2 before returning to April levels
AAA-rated bond issue rate vs average loan rate (%)
Credit gross issuance Credit net issuance
10,000 9,519 8
Weighted average loan rate
1Y AAA average issuance rate
9,000
3Y AAA average issuance rate
7
8,000
7,000 6
6,000 5,549
5
5,000
3,806
4,000 4
3,000
3
2,000
1,126
1,000 2
Mar-14
Mar-13
Mar-15
Mar-16
Mar-17
Nov-13
Nov-14
Nov-15
Nov-16
Jul-17
Jul-13
Jul-14
Jul-15
Jul-16
0
2010 2011 2012 2013 2014 2015 2016 1-8 2017

WMP growth has slowed down materially in 2017
Interbank funding back to June 2016 level WMP growth has been slowing
WMP funding source (CNY tn) Historical outstanding of WMPs (CNY tn) and growth
rate (%)
35 35 60%
Retails Institutions WMPs outstanding 56.46%
Private banking Interbank
y/y (RHS)
30 30
50%
6 4 25 41.90%
25
4 40%
20
20
30%
15
15
20%
10
10
10%
5
8.07%
5
0 0%
Jul-14
Mar-13
Jul-13
Mar-14
Mar-15
Jul-15
Mar-16
Jul-16
Mar-17
Nov-14
Nov-13
Nov-15
Nov-16
0
Jun-14 Jan-15 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17
Note: Only Interbank and aggregate market size are available in June 2017; Source: CBRC, Wind, Standard Chartered Research 35
Asset management sector has grown at 59% CAGR in 2014-16
Fast growing WMP and asset management c.70% of asset management sector has close
industry, AUM, CNY tn relationships with banks external mandates, %
Banks external mandate may have risen beyond
Asset management industry WMP
CNY 20tn
CAGR = 59%
60
51.8
Private
50 equities
19% Public funds
Futures
CAGR = 39% funds 21%
40 38.2 0.5%
29.50
30
23.50
20.5
20
15.02
Private funds
Securities 27%
10 33%
0
2014 2015 2016
Source: China asset management association, Wind, Standard Chartered Research 36

but AUMs registered their first decline in Q2
First q/q AUM decline in Q2-2017 Among mutual funds, only money-market funds
AUM breakdown of asset mgmt industry (CNY tn) are growing, up 37% YTD as of August
AUM breakdown of mutual funds (CNY bn)
Mutual funds Funds segregated account
60 6,000
Securities asset management Futures asset management
Private equity
50 5,000 Money-market
funds
40 4,000
Equity and
30 3,000 hybrid funds
20 2,000
Bond funds
10 Closed-end
1,000 funds
0 QDII
0
Mar-15
Mar-17
Jun-15
Mar-16
Jun-16
Jun-17
Dec-14
Sep-15
Dec-15
Sep-16
Dec-16
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Sep-13
Sep-14
Sep-15
Sep-16
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Money-market funds have been an exception
AUM of MMFs were up nearly 40% from Jan-Jul 2017 Bonds usually account for 30-40% of MMFs asset
Historical outstanding money-market funds (CNY bn) allocation, Historical holdings of MMFs by type (CNY bn)
7,000 6,000
Bonds Cash Others
5,000
4,000
6,000
3,000
2,000
5,000 1,000
0
2014 2015 2015 2015 2015 2016 2016 2016 2016 2017 2017
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
4,000
MMFs have increased allocations to CGBs and NCDs

3,000 while reducing allocations to credit bonds
Breakdown of money-market fund bond holdings (CNY bn)
2,000 CGB PFB NCD Credit bonds
2,000
1,500
1,000
1,000
500
0
0 2014 2015 2015 2015 2015 2016 2016 2016 2016 2017 2017
2012 2013 2014 2015 2016 Jul-2017 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

Outsourced fund management to decline further
Banks outsourced fund management could total Upcoming redemptions of outsourcing positions
over CNY 15tn after removing duplications may be heavy, %
AUM (CNY tn) % of funding Funds from Forecast of AUM redemptions in private funds and
CNY tn 10 Sep Q2 End- from banks banks assets managed by securities (CNY tn)
2017 2017 2016 (end-2016) (end-2016) 8 Low case High case
Public funds 11.2 10.1 9.2 n.a.
6.95
7
Subsidiaries of
funds 8.2 8.6 10.5 63% 6.42
() 6
Separately
managed accounts
4.9 5.1 58% 2.73 5 4.66
of funds
() 6.5 4.24
Social security and 4
1.4 1.3 n.a. 3.40 3.53
annuity funds
Asset management
3
businesses of
17.7 18.1 17.3 73%* 12.68
security companies
() 2 1.69
1.31
Futures companies 0.2 0.2 0.3 n.a.
1 0.66
Private equity 10.3 9.5 7.9 n.a.
0
Total 54.1 52.8 51.8 21.83
Q2 2017 Q3 2017 Q4 2017 Q1 2018
Note: * Funding from banks accounts for 86% of funds for the management accounts (), which in turn accounts for 85% of total
39
assets managed by security companies. Source: China asset management association, Wind, Standard Chartered Research
NCD supply remains strong despite intensive regulatory tightening
Negotiable certificates of deposit (NCDs) have emerged as an important class of onshore bonds
Outstanding NCDs reached CNY 8.3tn as of 8 September, accounting for 11.7% of the onshore bond market
Supply started to pick up strongly since 2015 when most commercial banks were given approval to issue NCDs
Since then, NCDs have become a key instrument for mid-to-small sized banks to boost their balance sheets, leading to a
material increase in structural leverage in Chinas financial system
NCDs have experienced exponential growth NCD rates have fallen below WMP yields (%)
since their introduction in 2013
Historical outstanding of NCDs (CNY bn)
9,000 8,402 6.0
8,000 3M NCD rate (%) WMP yield (%, 3MMV)
5.5
7,000 6,272
6,000 5.0
5,000 4.5
4,000
3,021 4.0
3,000
3.5
2,000
1,000 600 3.0
34
0 2.5
2013 2014 2015 2016 Aug 2017 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17

Net issuance has declined with increasing redemption pressure
NCD net issuance has declined, but stayed September redemptions the highest on record
positive, Monthly issuance and outstanding (CNY bn) Monthly NCD maturities by type (CNY bn)
Gross issuance Redemption State-owned banks Joint-stock banks
Net issuance Outstanding(RHS, CNY tn) Urban commercial banks Rural commercial banks
2500 9.0 2,500
2000 8.0
2,000
1500 7.0
1000 6.0
1,500
500 5.0
0 4.0 1,000
-500 3.0
500
-1000 2.0
-1500 1.0
0
May-
May-
Mar-16
Jul-16
Mar-17
Jul-17
Sep-16
Sep-17
Nov-16
Nov-17
Jan-16
Jan-17
-2000 0.0
Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17

NCDs will be included in the MPA from Q1-2018
Since the start of 2017, Chinas authorities have 35 banks have asset sizes larger than CNY 500bn as of
hinted at re-classifying NCDs as interbank end-2016. Eight of 28 that have data available have
liabilities to reduce interbank leverage. More interbank liabilities + NCD ratios beyond 33% as of Q2,
and only three have been reducing NCD positions faster
tightening was announced in July and August. than interbank liabilities (Green bar denotes banks that
Including NCDs in the MPA from Q1-2018 reduce NCDs faster than interbank liabilities)
0% 10% 20% 30% 40% 50%
The PBoC announced in its Q2-2017 monetary policy
report that banks with asset size larger than CNY 500bn Baoshang bank
Jinzhou bank
will need to include their NCD positions in their interbank Hangzhou bank
liabilities under the MPA from Q1-2018 Industrial bank
Tianjin bank
Bank of Shanghai
We expect a limited immediate impact, as nearly 85% of Jiangsu bank
all outstanding NCDs will mature by Q1-2018 SPDB
Ningbo bank
Bohai bank
Banks may either reduce NCDs or other interbank Huaxia bank
liabilities should the combined ratio exceed one-third Minsheng bank
Bank of Beijing
Xiamen bank
We expect most joint-stock banks to reduce other Huishang bank
interbank liabilities, such as repos, at a faster pace than Everbright bank
Pingan bank
NCDs, owing to the LCR requirement CITIC Bank
Bank of Nanjing
Chengdu rural commercial bank
Chongqing rural commercial bank
BOCOM
CMB
BOC
ICBC 33%
CCB
ABC
Postal savings bank

Tighter guidance on NCD tenor and investment exposure
Following the MPA announcement, the PBoC has issued guidance to cap the NCD issuance tenor at
1Y. Meanwhile, CSRC has also tightened asset managers exposure to lower-rated NCDs
1) On 31 August, the PBoC announced that banks are not allowed to issue NCDs with tenors longer
than 1Y from 1 September
This regulation aims to close a potential loophole after the announcement of previous tightening measures
The immediate impact is likely to be limited, in our view, as NCDs of more than 1Y at the time of issuance accounted for
only 0.5% of all issuance since the start of 2016
2) On 1 September, the China Securities Regulatory Commission (CSRC) announced the following as
part of its revised liquidity management guidance for public mutual funds:
Money-market funds (MMFs) need to limit their exposure to assets rated below AAA; exposure to AA and below-rated
deposits and NCDs require special approval by the funds board of directors
If more than 50% of an MMF is owned by a single investor, 80% of its assets are required to be deployed in cash, CGBs,
PBoC bills, PFBs and other financial instruments that mature within five working days
If the top 10 holders share exceeds 50% of an MMF, the maximum duration of the portfolio cannot exceed 60 days and a
minimum 30% of the asset allocation is required to be in cash, CGBs, PBoC bills, PFBs and other assets that mature
within five working days
These may result in lower net issuance going forward and a widening of NCD spreads across different ratings. AA or
below-rated banks may face the greatest pressure

NCD rule changes lead to wider rating differentials
MMFs can only invest in AA+ or above-rated NCDs 1Y and below NCDs will be incorporated in MPA
NCD issuance rating breakdown (%) NCD issuance tenor breakdown (%)
A+ or below
100% 100% >1Y
AA-
90% AA 90% 1Y
9M
80% 80%
AA+
6M
70% 70%
60% 60%
50% 50%
3M
40% 40%
AAA
30% 30%
20% 20%
10% 10% 1M
0% 0%
Mar-17
Mar-17
Sep-16
Oct-16
Sep-16
Oct-16
Nov-16
Apr-17
Jan-17
Nov-16
Apr-17
Jan-17
Aug-17
Feb-17
May-17
Jun-17
Jul-17
Aug-17
Jun-17
Feb-17
May-17
Jul-17
Dec-16
Dec-16

Offshore market
CNH Liquidity likely to be stable; we like

long-dated bonds
PBoC removes offshore banks onshore deposit reserve lock-up
Effective 8 September, onshore agent banks are no longer required to maintain segregated accounts
for reserve payments by offshore banks for their onshore deposits. This is effectively a removal of the
3M lock-up requirement for offshore banks onshore deposit reserves and a shift of the reserves
funding provider from offshore banks to onshore agent banks
Funding in the segregated accounts can be released back to offshore banks for clearing payments and other purposes
Offshore banks onshore Renminbi deposit reserve payments will be treated in the same way as other onshore deposits
Previously, reserve payments for offshore banks onshore deposits were required to be maintained in a segregated
account, with positions adjusted quarterly effectively a 3M funding lock-up.
No more ultra-flush CNH liquidity at quarter-end; no more negative tomorrow/next (T/N) CNH rates
The removal of the 3M lock-up means that banks no longer have an incentive to aggressively lend excess funding at
quarter-end, implying no more ultra-flush CNH liquidity at the end of the quarter.
CNH liquidity may not loosen despite the release of reserves back to offshore banks
Better funding connectivity between on- and offshore markets may lead to further convergence of on- and offshore funding
costs
Current short-term funding rates are higher in the onshore market than in the CNH market (onshore 7-day repo fixing at
3.44%, and 1-week CNH HIBOR fixing at 3.33%, as of 19 Sep 2017)
Offshore banks may keep deposit reserve funding onshore until CNH rates are at par with or higher than onshore rates
Short-dated high-quality CNH assets are yielding lower than their onshore peers. This may also limit banks incentive to
bring onshore deposits back into the CNH market
*Except clearing banks for Hong Kong and Macau

46
Source: Standard Chartered Research
Short-dated high-quality CNH assets are yielding lower
Front-end CNH CGB yields are already lower than onshore, while long end still offers a premium
On-offshore CGB yield curve (offer yield, %), as of 12 September 2017
4.6
4.4
4.2
CNH CGB
4.0
3.8 CNY CGB
3.6
3.4
3.2
1Y 2Y 3Y 4Y 5Y 7Y 10Y 15Y 20Y 30Y

Gross issuance to decline 53-56% to CNY 140-150bn in 2017
Gross issuance of Panda bonds is picking up We cut gross issuance forecast to CNY 140-150bn
Dim Sum and Panda bond issuance (CNY bn) Historical & expected annual gross issuance, CNY bn
600 600
CNH bonds Formosa
Panda CD
500 500
Dim Sum
400 400
321
300 300
200 200
129
107
100 100
64
0 0
2009
2016
YTD
YTD
2008
2010
2012
2013
2014
2015
2012
2009
2010
2013
2014
2015
2016
2011
2011
2017F
2017F
*as of 19 Sep 2017; Source: Bloomberg, Standard Chartered Research 48
Outstanding market size to fall 26-25% in 2017
We expect the market size to shrink further in 2017 Outstanding market down 22% YTD*
Historical and expected outstanding market size (CNY bn)
Outstanding market size as of 19 September 2017: CNY 900
545bn, down 22% from end-2016 Formosa CD Dim Sum
800
We expect the market size to decline further in 2017, as 700

we expect most maturing Dim Sum bonds to be
refinanced in the onshore market
600
We expect the outstanding market size to fall 25-26% 500

this year to CNY 515-525bn by end-2017
400
300
200
100
Aug-17
2008
2009
2010
2012
2013
2014
2015
2016
2011
2017F
*as of 19 September 2017; Source: Bloomberg, Standard Chartered Research 49
Stock Connect programmes injecting CNH liquidity
First monthly CNH outflow since April 2016 CNH liquidity is likely to stay stable near-term
Net and cumulative liquidity change (CNY bn) Overnight CNH HIBOR rate and 1Y DF points
Net (northbound - southbound flows) O/N CNH HIBOR (%) 1Y CNH DF points (pips, RHS)
50 Cumulative (CNY bn, RHS) 150 80 4,000
40 100 70 3,500
30
50 60
20 3,000
0
10 50
2,500
0 -50
40
-10 -100 2,000
30
-20 -150
1,500
-30 20
-200
-40 1,000
10
-250
-50
0 500
-60 -300
-70 -350 -10 0

Mar-15
Mar-16
Mar-17
Sep-15
Sep-16
Aug-15
Aug-16
Aug-17
Feb-15
May-15
Feb-16
May-16
Feb-17
May-17
Nov-14
Nov-15
Nov-16
Jan-15
Jan-16
Jan-17
Jul-15
Jul-16
May-15
May-16
May-17
Jul-17
Nov-14
Nov-15
Nov-16
ASW issuance accounts for the majority of bond issuance in 2017
Asset swap (ASW) issuers accounted for a majority 60%+ of total supply was ASW issuance in 2017 YTD*
of Dim Sum and Formosa bond issuance in 2016; we Monthly CNH bond issuance by type (CNY bn)
expect this trend to continue in 2017 ASW issuances Others Govt
20
ASW issuance is again likely to account for a majority of 15
2017 bond issuance. Out of a total CNY 110-120bn of
new bond issuance, we expect: 10
Government bonds of CNY 28-30bn (24-26%) 5

ASW bonds of CNY 65-75bn (57-65%) 0
Other bond issuance of CNY 15-17bn (13-15%)
ASW issuance has been popular in the CNH market, as

performance of cash bonds has been stickier than that of Bond yields are more sticky than swap rates
FX swaps/CCS since 2016, especially as rates have Historical 3Y USD-CNH and CNH CGB yield (%)
risen 6.00 3Y USD-CNH CCS rate 3Y CNH CGB yield
This is owing to a change in the holding structure of the
Dim Sum bond market since late 2015 5.00
Anecdotal evidence shows that a majority of Dim Sum 4.00

bonds (estimated at 70-80%) are now held by China
investors, with their positions funded initially by onshore 3.00
liquidity via QDII, RQDII or WMP
2.00
Jan-15 Jun-15 Nov-15 Apr-16 Sep-16 Feb-17 Jul-17
*as of 19 Sep 2017; Source: Bloomberg, Standard Chartered Research 51

Foreign investors that can access CIBM (public sector)
62 foreign central banks, international financial institutions and sovereign wealth funds are on the
CIBM; 18 names have been released by PBoC:
Name Entry date
1 Hong Kong Monetary Authority 1-Sep-10
2 Bank of Korea 1-Oct-10
3 Government of Singapore Investment Corporation Private Limited 1-Oct-10
4 World Bank 1-Oct-10
5 Bank for International Settlements -
6 National Bank of Belarus 28-Jan-11
7 Korea Investment Corporation 28-Jan-11
8 Bank of Lithuania 28-Jan-11
9 Asian Development Bank 28-Jan-11
10 Swiss National Bank 28-Jan-11
11 New Development Bank 28-Jan-11
12 International Bank for Reconstruction and Development 28-Jan-11
13 International Development Association 16-Mar-11
14 African Development Fund 16-Mar-11
15 African Development Bank 16-Mar-11
16 Arab Monetary Fund 16-Mar-11
17 National Bank of Slovakia 16-Mar-11
18 National Bank of Cambodia 16-Mar-11
*as of August 2017 Source: PBoC, Standard Chartered Research 52

Foreign investors that can access CIBM (private sector)
Name Name
1 Industrial and Commercial Bank of China (Asia) Limited 33 Barclays Bank Plc. Hong Kong Branch
2 Hongkong And Shanghai Banking Corporation Limited 34 Oversea-Chinese Banking Corporation Limited
3 Bank of China (Hong Kong) Limited 35 Industrial and Commercial Bank of China (Europe) S.A.
4 Standard Chartered Bank (HK) Limited 36 Harvest Global Investments Limited
5 Bank of Communications Co., Limited Hong Kong Branch 37 China Asset Management (Hong Kong) Limited
6 DBS Bank (HK) Limited 38 Guotai Junan Financial Holdings Limited
7 Bank of East Asia Limited 39 China International Capital Corporation (Hong Kong) Limited
8 Hang Seng Bank Limited 40 Haitong International Holdings Limited
9 China Construction BankAsia) Corporation Limited 41 GF Holdings (Hong Kong) Corporation Limited
10 Nanyang Commercial Bank Limited 42 CSOP Asset Management Limited
11 Chiyu Banking Corporation Ltd 43 Bank Sinopac Hong Kong Branch
12 Wing Lung Bank Limited 44 OCBC Wing Hang Bank LimitedMacau
13 China Construction Bank Corporation Hong Kong Branch 45 Bosera Asset Management (International) Co., Limited
14 Agricultural Bank of China Limited Hong Kong Branch 46 Essence International Financial Holdings Limited
15 China CITIC Bank International Limited 47 China Universal Asset Management (Hong Kong) Company Limited
16 CitiBank N.A. Hong Kong Branch 48 CITIC Securities International Company Limited
17 Bank of Tokyo-Mitsubishi UFJ, Limited. Hong Kong Branch 49 China Merchants Securities International Company Limited
18 Deutsche Bank AG Hong Kong Branch 50 Shenwan Hongyuan (International) Holdings Limited
19 Bank of America National Association Hong Kong Branch 51 HFT Investment Management (HK) Limited
20 Bank of China Limited Hong Kong Branch 52 E Fund Management(Hong Kong) Co., Limited
21 Chong Hing Bank Limited 53 Guosen Securities (HK) Financial Holdings Company Limited
22 OCBC Wing Hang Bank LimitedHong Kong 54 Da Cheng International Asset Management Company Limited
23 China Merchants Bank Hong Kong Branch 55 Everbright Securities Financial Holdings Limited
24 Industrial and Commercial Bank of China (Macau) Limited 56 Australia and New Zealand Banking Group Limited, Hong Kong Branch
25 United Overseas Bank Limited 57 HuaAn Asset Management (Hong Kong) Limited
26 BNP Paribas Hong Kong Branch 58 BOC Group Life Assurance Company Limited
27 Hong Leong Bank Berhad Hong Kong Branch 59 Sun Life Hong Kong Limited
28 Fubon Bank (Hong Kong) Limited 60 Industrial and Commercial Bank of China Limited, Hong Kong Branch
29 Mizuho Corporate Bank,Ltd. 61 Guoyuan Securities (Hong Kong) Limited
30 Bank of China Limited Macau Branch 62 JPMorgan Chase Bank, N.A. Hong Kong Branch
31 Shanghai Commercial Bank Limited 63 Taipei Fubon Commercial Bank Co.,Limited Hong Kong Branch
32 Industrial and Commercial Bank of China (Malaysia) Berhad 64 China Life Insurance (Overseas) Co. Limited

Foreign investors that can access CIBM (private sector) (cont.)
Name Name
65 Dah Sing Bank, Limited 95 Cathay Securities Investment Trust Co., Limited
66 Prudential Hong Kong Limited 96 First Commercial Bank Offshore Banking Branch
67 Manulife (International) Limited 97 Hang Seng Insurance Company Limited
68 Hua Nan Commercial Bank Ltd, Hong Kong 98 Taiwan Life Insurance Co., Limited
69 Bank of Taiwan Hong Kong Branch 99 ICBC (London) PLC
Mega International Commercial Bank Co.,Limited Offshore Banking
70 100 Taikang Asset Management (Hong Kong) Company Limited
Branch
71 CTBC Bank Co., Ltd., Hong Kong Branch 101 CCB International Asset Management Limited
72 Taiwan Cooperative Bank Hong Kong Branch 102 Dah Sing Life Assurance Company Limited
73 HSBC Life (International) Limited 103 China Construction BankLondon) Limited
74 Metlife Limited 104 Jih Sun International Bank, Ltd.
75 Malayan Banking Berhad Hong Kong Branch 105 China Everbright Bank Company Limited (Hong Kong Branch)
76 Cathay United Bank Offshore Business Unit 106 HSBC Global Asset Management (Hong Kong) Limited
77 Taiwan Business Bank Hong Kong Branch 107 Ashmore Investment Management Limited
78 E.SUN Commercial Bank Limited Hong Kong Branch 108 Fullerton Fund Management Company Ltd
79 Macquarie Bank Limited 109 China Life Franklin Asset Management Co.,Limited
80 AIA International Limited 110 Franklin Templeton SinoAM SIM Inc.
81 Industrial and Commercial Bank of China Limited, Singapore Branch 111 Bank ICBC (joint stock company)
82 Luso International Banking Limited 112 Commerzbank AG
83 UniCredit Bank AG Hong Kong Branch 113 The Shanghai Commercial & Savings Bank Limited
84 Banco Nacional Ultramarino,S.A. 114 Income Partners Asset Management (HK)
ICBC Credit Suisse Asset Management (International) Company
85 115 China Life Insurance Co., Limited. (TAIWAN)
Limited
86 Taishin International Bank 116 UBS Global Asset Management (Hong Kong) Limited
87 ACE Life Insurance Company Limited 117 HSBC Bank (Taiwan) Limited
88 AllianceBernstein Limited 118 ABCI Asset Management Limited
89 CIFM Asset Management(Hong Kong)Limited 119 China Everbright Assets Management Limited
90 Nan Shan Life Insurance Co., Limited 120 Bank of China Limited Taipei Branch
91 UBS SDIC Asset Management (Hong Kong) Company Limited 121 Ping An of China Asset Management (Hong Kong) Co. Ltd.
92 BOCI-Prudential Asset Management Limited 122 PT.Bank ICBC Indonesia
93 Agricultural Bank of China (UK) Limited 123 China Securities IntenationalFinance Holding Company Limited
94 GF International Investment Management Limited 124 China Galaxy International Financial Holdings Limited

Name Name
125 Sinopac Asset Management (Asia) Limited 155 Keb Hana Bank
126 Capital Investment Trust Corporation 156 Lion GlobalInvestors Limited
127 The Bank of Nova Scotia Singapore Branch 157 ING Bank N.V.
128 Morgan Stanley & Co. International plc 158 Entie Commercial Bank
129 Nikko Asset Management Asia Limited 159 Bank of East Asia Life Limited
130 Cinda International Asset Management Limited 160 BNP Paribas
131 PIMCO Asia Pte Limited 161 Fubon Asset Management Co.,Limited
132 Citibank Taiwan Limited 162 Hyundai Securities Co.,Limited
133 Societe Generale 163 Qilu Bank Co.,Ltd
BOCOM Schroder Asset Management (Hong Kong) Company
134 164 Bank of Communications Co., Limited Seoul Branch
Limited
135 DBS Bank Limited 165 Huatai Financial Holdings (Hong Kong) Limited
136 Sinolink Securities (Hong Kong) Companey Limited 166 Shanghai Pudong Development Bank Co., Ltd, Hong Kong Branch
137 Mercuries Life Insurance Co., Ltd. 167 UOB Asset Management Limited
138 Chubb INA International Holdings, Limited 168 Bank of China Limited Frankfurt Branch
139 Prescient Investment Management (PTY) Limited 169 Commonwealth Bank Of Australia
140 ICBC (Asia) Investment Management Company Limited 170 Swiss Reinsurance Company Ltd
141 Schroder Investment Management (Hong Kong) Limited 171 JPMorgan Asset Management (Singapore) Limited
142 Industrial and Commercial Bank of China (Canada) 172 CDH Investment Advisory Private Limited
143 Fubon Insurance Company Limited 173 Bank of Taiwan
144 Shin Kong Life Insurance Co., Limited. 174 BlackRock Advisors (UK) Limited
145 Pictet Asset Management Limited 175 KGI Bank
146 Ta Chong Bank Limited 176 HSBC Global Asset Management (Taiwan) Limited
147 Standard Chartered Bank (Korea) Limited 177 Industrial and Commercial Bank of China (Thai) Public Company Limited
148 Yue Xiu Asset Management Limited 178 Korea Development Bank
Industrial and Commercial Bank of China Limited, Luxembourg
149 179 BNP Paribas Investment Partners Asia Limited
Branch
150 Schroder Investment Management (Singapore) Ltd 180 UBS AG
151 Cathay Life Insurance Co., Limited 181 Mirae Asset Global Investments Co., Ltd
152 Investec Asset Management Limited 182 Neuberger Berman Singapore Pte.Limited
153 Chang Hwa Commercial Bank Limited 183 The Bank of Nova Scotia Asia Limted
154 Shinhan BNP Paribas Asset Management Co., Ltd. 184 Columbia University

Name Name
185 Shinhan Investment Corporation 215 China Construction Bank Tokyo branch
186 Cephei Capital Management(Hong Kong)Limited 216 Hillhouse Capital Mnangement Pte. Ltd.
187 Industrial Bank of Korea 217 SAMSUNG Asset Management Co., Ltd.
188 Allianz Global Investors Singapore Limited 218 Cascade Investment, L.L.C.
189 Fullgoal Asset Management (HK) Limited 219 China Opportunity International Limited
190 Bank of China Limited Paris Branch 220 First Securities Investment Trust Co.
191 Samsung Securities Co., Ltd 221 Credit Industriel et Commercial
192 VTB Bank Open Joint Stock Company 222 E.SUN Commercail Bank Limited
193 Orient Finance Holdings (Hong Kong) Limited 223 HSBC Investment Funds (HongKong) Limited
194 Insight Investment Management (Global) Limited 224 TongYang Life Insurance Co., Ltd.
195 Bank of China Limited Sydney Branch 225 Bank Of China (Luxembourg) S.A
196 Dymon Asia Capital (Singapore) Pte. Ltd. 226 Bill & Melinda Gates Foundation Trust
197 BEA Union Investment Management Limited 227 National Pension Service
198 Eastfort Asset Management Private Limited 228 Gavekal Fund Management (Ireland) Ltd
199 Generali Investments Luxembourg S.A. 229 Nomura Asset Management Deutschland KAG mbH
200 China Construction Bank (DIFC Branch) 230 Krane Funds Advisors, LLC
201 Bridgewater Associates, LP 231 Pioneer Asset Management S.A.
202 BNP Paribas Asset Management 232 China Construction Bank Corporation,Singapore Branch
203 Kookmin Bank 233 Boston Management and Research
204 Aberdeen Asset Management Asia Limited 234 Eaton Vance Management
205 Macquarie Bank Limited Singapore Branch 235 JF Asset Management Limited
206 CTBC Bank Co.,LTD.,Offshore Banking Unit 236 Standard Chartered Bank(TaiWan) Limited
207 Agricultural Bank of China (Luxembourg) S.A. 237 AllianceBernstein L.P.
208 China Construction Bank Seoul Branch 238 Yuanta Securities Investment Trust Co.,Ltd
209 T. Rowe Price International Ltd 239 Haitong Bank, S.A
210 China Construction Bank Corporation Ltd, Taipei Branch 240 ST Asset Management LTD
211 Ontario Pension Board 241 Shinkong Insurance Co., Ltd
212 Standard Chartered Bank Singapore Branch 242 TransGlobe Life Insurance Inc.
213 GuoTai Global Investment Limited 243 Nomura Singapore Limited
214 CICC Financial Products Ltd 244 JPMorgan Asset Management (TaiWan) Limited

Name Name
245 FIL Investment Management (HongKong) Limited 275 Complus Asset Management Limited
246 Manulife Asset Management (HongKong) Limited 276 Graticule Asset Management Asia Pte.Ltd
247 Industrial and Commercial Bank of China Limited, New York Branch 277 Bluebay Asset Management LLP
248 Legg Mason Investments (Europe) Limited 278 Crescent Asset Management Asia Pte.Ltd
249 Canada Pension Plan Investment Board
250 Standard Chartered Bank
251 Mitsubishi UFJ Kokusai Asset Management CO.,Ltd
252 KASIKORNBANK Public Company Limited
253 JPMorgan Asset Management (UK) Limited
254 ICBC Standard Bank Plc
255 Industrial and Commercial Bank of China Limited, Sydney Branch
256 Industrial and Commercial Bank of China Limited, Seoul Branch
257 Ontario Teachers' Pension Plan Board
258 Fuh Hwa Securities Investment Trust Co.,Ltd.
259 Industrial Bank Co.,Ltd., HongKong Branch
260 Goldman Sachs International
261 Alphadyne Asset Management Pte.Ltd.
262 China Industrial Securities International Asset Management Ltd.
263 Manulife Asset Management (Taiwan) Co.,Ltd
264 UBS Asset Management (HongKong) Limited
265 Pharo Gaia Fund, Ltd
266 Coordinates Capital Management Limited
267 Credit Suisse (Singapore) Limited
268 KGI Securities Co.Ltd.
269 China Construction Bank Corporation Niederlassung Frankfurt
270 Industrial and Commercial Bank of China Ltd Vientiane Branch
271 Kasikorn Asset Management Co.,Ltd
272 Nomura International PLC
273 UBS Asset Management (Singapore) Ltd
274 AXA Investment Managers Paris

Foreign investors registered under Bond Connect
Name Name
1 Bank of China Hong Kong Asset Management 31 BC Global Asset Management - BC Greater China Opportunities Fund
2 BOSC International 32 China Oriental Asset Management (Hong Kong) - Global Fixed Income Global Fund
3 China International Capital Hong Kong Asset Management 33 BEA Union Investment Asia Pacific Multi Income Fund
4 CICC Commodity Trading 34 Bank of East Asia
Income Partners Asset Management (HK) - Income Partners All Seasons Macro Strategy
5 CICC Financial Products 35 Fund
Income Partners Asset Management (HK) - Income Partners Asia High Income Bond
6 China International Capital Hong Kong Securities 36 Fund
Income Partners Asset Management (HK) - Income Partners RMB High Income Bond
7 DBS Bank 37 Fund
8 HSBC Bank Malaysia Berhad 38 Income Partners Asset Management (HK) - Income Partners RMB Money Market Fund
9 NineMasts Capital - NineMasts Investment Fund 39 Income Partners Asset Management (HK) - Income Partners RMB Bond Fund
Income Partners Asset Management (HK) - Income Partners All Seasons Asia Credit
10 PineBridge Investments (Ireland) - PineBridge Asia Balanced Fund 40 Fund
11 Manulife Asset Management (HongKong) - MIL RMB Endowment 2 Bond 41 Income Partners Asset Management (HK) - Income Partners All Seasons Bond Fund
12 Manulife Asset Management (hk) -MIL RMB Endowment Bond 42 Fosun Hani Securities
13 Manulife Asset Management (hk) -MIL RMB Endowment Unallocated 43 GF Global Capital
14 Manulife Asset Management (hk) -MIL Shareholder Bond RMB 44 Guotai Junan Financial Products
15 Taikang Asset Management (Hong Kong) 45 China Universal Asset Management (Hong Kong) - CUAM RMB Bondplus Fund
Taikang Asset Management (Hong Kong) - Taikang China Strategy Fixed
16 Income Fund 46 Taiwan Life Insurance
17 Taikang Kaitai China Corporate Bond Fund 47 Shanghai Pudong Development Bank Hong Kong Branch
Taikang Asset Management (Hong Kong) - Taikang Kaitai One Belt One
18 Road Bond Fund 48 China Construction Bank Macau Branch
Taikang Asset Management (Hong Kong) - Taikang Kaitai Asia Growth
19 Bond Fund 49 China Construction Bank Sydney Branch
20 SinoPacSecurities (Asia) 50 Bank of Communications Macau Branch
21 Prescient Investment Management - Prescient China Defensive Fund 51 Bank of Communications Tokyo Branch
22 Prescient Investment Management - Prescient China Balanced Fund 52 Bank of Communications Sydney Branch
23 Standard Chartered International Commercial Bank 53 Bank of Communications Singapore Branch
24 Standard Chartered Bank (Hong Kong) 54 SPDB International Investment Management
25 China Merchants Securities (Hong Kong) 55 BOCHK Charitable Foundation
26 CMS Asset Management (Hong Kong) - Global Multi-Asset Portfolio SPC 56 Bank of China (Hong Kong)
27 CMS Asset Management Fixed Income Portfolio 57 Caitong International Asset Management
28 China Silk Road International Capital 58 Chiyu Banking Corporation
29 China Silk Road Financial Holdings 59 Bridgewater Associates - Bridgewater All Weather Portfolio III
30 Bank of China Life Insurance 60 Bank of America Hong Kong Branch
*as of August 2017 Source: CFETS, Standard Chartered Research 58
Name Name
61 Agricultural Bank of China Seoul Branch 91 CNCB (Hong Kong) Capital
62 Agricultural Bank of China Frankfurt branch 92 CNCB (Hong Kong) Investment
63 Deutsche Bank Taipei Branch 93 Cathay Life Insurance
China Oriental Asset Management (Hong Kong) - Overseas Selection Fixed Income
64 CCB International Securities 94 Global Fund
65 DBS Bank Hong Kong Branch 95 Hillhouse Capita lManagement- YHG Investment LP
66 Deutsche Bank AGHong Kong Branch 96 Lion Global Investment Funds II-Lion Global RMB Quality Bond Fund
67 Agricultural Bank of China International Asset Management 97 Lake Front Asset Management - Lake Front Global Macro Fund
68 Morgan Stanley International 98 HSBC
69 Cathay Securities (Hong Kong) 99 Hillhouse Capital Management - Gaoling Fund LP
70 Taishin International Bank Hong Kong Branch 100 DBS Bank Taipei Branch
Value Partners Group - Value Parterns Greater China High Yield Bond
71 Fund 101 CSI Capital Management
72 Amundi Singapore - Amundi Hong Kong Defensive Balanced Fund 102 CISI Investment
73 Amundi Singapore - Amundi Hong Kong Balanced Fund 103 CICC Wealth Investment
74 Orient Securities (Hong Kong) 104 China Oriental Asset Management (Hong Kong) - Overseas Global Fund
75 Bank of Communications Hong Kong Branch 105 CITIC Bank (International)
76 Agricultural Bank of China Hong Kong Branch 106 Haitong International Financial Products
Asia Lions Capital (Hong Kong) - Asia Lion Investment Opportunity Master
77 Fund 107 OCBC Hong Kong Branch
78 Bank of China Macau Branch 108 China Asset Management (Hong Kong)
79 Bank of China Hong Kong Branch 109 CSOP Asset Management
80 Bank of China Singapore Branch 110 Taikang Asset Management (Hong Kong) - Client A
81 China Investment Securities International Brokerage 111 Essence Global Investment
82 Bank of China International Financial Products 112 ICBC Credit Suisse Asset Management (International)
83 China Construction Bank Taipei Branch 113 Industrial and Commercial Bank of China (Asia)
84 China Merchants Bank Hong Kong Branch 114 ICBC Asia Investment Management - Greater China Fund
Agricultural Bank of China International Asset Management - Client funds
85 (Bond Connect) 115 ICBC Asia Investment Management - Global Total Return Bond Fund
86 Agricultural Bank International Insurance 116 ICBC Asia Investment Management - Global RMB Fixed Income Fund
87 Agricultural Bank International Securities 117 Guosen Securities (Hong Kong) Brokerage
88 Agricultural Bank of China International Asset Management Cayman 118 Long-term Capital Fund (Australia)
89 China Construction Bank Zurich Branch 119 Bosera Asset Management (International) Co,
90 Agricultural Bank of China Dubai Branch 120 Deutsche Bank AG Singapore Branch
Source: CFETS, Standard Chartered Research 59

Name Name
121 FTLife Insurance 151 China Construction Bank Singapore Branch
122 Guotai Junan Financial Holdings 152 Aspen Hill Partners HK - AHP Fixed Income SP
123 E Fund Management (Hong Kong) - Customer funds 6 153 Aspen Hill Partners HK - AHP Stable Return Bond SP
124 E Fund Management (Hong Kong) - Customer funds 9 154 Aspen Hill Partners HK - AHP Asia Credit Opportunities SP
125 E Fund Management (Hong Kong) - Customer funds 3 155 HSBC Investment Fund (Hong Kong) - HSBC Asia High Income Bond Fund
126 GF International Asset Management 156 HSBC Investment Fund (Hong Kong) - HSBC Asia Bond Fund
127 China Construction Bank (Asia) 157 HSBC Investment Fund (Hong Kong) - HSBC Asia High Yield Bond Fund
128 China Construction Bank Hong Kong Branch 158 Soros Fund Management (Hong Kong) - QuantumChinaFund
129 OCBC Hong Kong Branch 159 Guosen (Hong Kong) Financial Products
130 Cathay United Bank Offshore Banking Unit 160 Agricultural Bank of China Singapore Branch
131 BOCOM International Securities 161 CGNPC Huasheng Investment
132 Bank of China, London Branch 162 Shenwan Hongyuan Asset Management (Asia)
133 CCB International Asset Management - RMB Fixed Income Fund 163 Shenwan Hongyuan Securities (Hong Kong)
134 BOC Group Insurance 164 E fund Management (HK) - Selection Investment Series - Global Bond Fund
135 PICC Asset Management (Hong Kong)
136 Mitsubishi Tokyo UFJ Bank Hong Kong Branch
137 China Orient International Asset Management - Enhanced Income Fund
138 Industrial Bank Hong Kong Branch
China Life Franklin Asset Management - Green Blue Special
139 Opportunities Fund
140 Bank SinoPac (Hong Kong Branch)
141 BOCOM International Asset Management
Prudence Investment Management (Hong Kong) - Prudence Enhanced
142 Income Fund
143 CSOP Asset Management - CSOP Shen Zhou RMB Fund
144 Bank SinoPac
Prudence Investment Management (Hong Kong) - Prudence Fixed
145 Income Fund
146 BNP Paribas Arbitrage SNC
147 Chong Hing Bank
148 Malayan Banking Berhad - Hong Kong Branch
149 GF International Bond Absolute Return Fund
150 Harvest Fund (Hong Kong) - Harvest China Income Fund
Source: CFETS, Standard Chartered Research 60

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China - Rising Foreign Demand Amid Deleveraging

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China - Rising Foreign Demand Amid Deleveraging

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China Rising foreign

demand amid deleveraging

Foreign demand is gaining strong momentum

Financial-market deleveraging and deposit migration

Offshore Renminbi (CNH) market outlook

Source: Standard Chartered Research 2

China official GDP (y/y, %) Bloomberg model estimate SCB forecasts

CPI and PPI to converge towards year-end

10 GDP Deflator CPI PPI Deflator forecast

Source: Bloomberg, Wind, Standard Chartered Research 3

40 Manufacturing Real estate Infrastructure 40 2014 2015 2016 2017 YTD

Source: Bloomberg, Wind, Standard Chartered Research 5

Source: Bloomberg, Standard Chartered Research 6

External debt position has rebounded to 2013 levels CFETS index

From October 2015 to 10 September 2017, banks were

Unwinding reserve requirements could lead to:

Source: Bloomberg, Standard Chartered Research 8

Source: Wind, Standard Chartered Research 11

SLF rates: 5.0

Note: as of 19 September 2017; Source: Bloomberg, Standard Chartered Research 12

Source: Wind, Bloomberg, Standard Chartered Research 13

1.15 1.08 0.0

Source: Wind, Standard Chartered Research 14

*Benchmark lending (1-3Y) is used before Dec 2014

Summary of tax treatment of China onshore bonds

Land reserve-backed Toll road-backed

Development of toll-road projects, including national highways,

- Revenue generated by the transfer of land usage rights,

Source: MoF, Chinabond, Standard Chartered Research 17

Median of pledged repo R07D is published

Backed by only rates

Publishing On dates with reverse

Source: CFECTs, Bloomberg, Standard Chartered Research 18

Foreign holdings of onshore assets have returned to 2015 levels, CNY bn

Source: Standard Chartered Research 20

Note: as of 19 September 2017 Source: Bloomberg, Standard Chartered Research 21

QFII/RQFII CIBM Bond Connect

Source: PBoC, CSRC, SAFE, Media reports, Standard Chartered Research 22

Source: CFETS, SHCH, Standard Chartered Research 23

400 104 208

Regulator Items Regulation name issue date

8 Notice on filling loopholes and enhancing efficiency of regulation () 4/10/2017

Notice on strengthening supervision and governance on market misconduct in insurance sector (

Source: Standard Chartered Research 30

Source: PBoC, Standard Chartered Research 31

Source: Bloomberg, Standard Chartered Research 32

Source: Wind, Standard Chartered Research 34

Source: China asset management association, Wind, Standard Chartered Research 36

MMFs have increased allocations to CGBs and NCDs

Source: Wind, Standard Chartered Research 38

Source: Wind, Standard Chartered Research 40

Source: Wind, Standard Chartered Research 41

Source: Standard Chartered Research 42

Source: Standard Chartered Research 43

Source: Wind, Standard Chartered Research 44

CNH Liquidity likely to be stable; we like

*Except clearing banks for Hong Kong and Macau

3.8 CNY CGB

Source: Wind, Standard Chartered Research 47

We expect the market size to decline further in 2017, as 700

We expect the outstanding market size to fall 25-26% 500

-70 -350 -10 0

Government bonds of CNY 28-30bn (24-26%) 5