The Effects of Foreign Participation on Chinese Government Bond Yields

Abstract

Abstract Research background Since 2015, when China opened up its onshore bond markets more substantially, foreign investors have significantly increased their investments in Chinese local currency bonds. Purpose This study aims to examine the effects of foreign participation on Chinese government bond yields. Research methodology This study adopts a robust least squares model and a cointegration model. Results (Greater) foreign participation can significantly decrease 10-year Chinese government bond yields. Novelty There are almost no studies of the benefits and costs of foreign participation in Chinese bond markets. The conclusion drawn from this study is the first of its kind in the academic literature on the Chinese market, and contributes to knowledge about foreign participation in local currency bond markets.