Citi just announced the inclusion of Chinese bond in three of its indices: the Emerging Markets Government Bond Index (EMGBI), Asian Government Bond Index (AGBI), and the Asia Pacific Government Bond Index (APGBI).

1. March 8, 2017
1 / 5
Index Inclusion:
One small step for Citi, one giant leap for China bond market
CIBM opening up accelerated in 1Q2017
Exhit1: Key events in CIBM since beginning of 2017
Source: ChinaAMC
Citi Bond Indices to Include China Government Bonds
Citi said China bonds will be included in its three government bond indices - the Emerging Markets
Government Bond Index (EMGBI), Asian Government Bond Index (AGBI), and the Asia Pacific Government
Bond Index (APGBI).
For a country to meet the eligibility requirement into the EMGBI, the outstanding amount of a market’s
eligible issues must total at lease US$ 10 billion. Accessibility of markets and replicability of returns are
additional requirements. At this moment, China has met the entry criteria of the EMGBI, if it continues to
meet these requirements for three consecutive months, it will join the EMGBI in February 2018. We foresee
these inflows should begin in the second half of this year and will shift up a gear in early 2018.
Citi said that it has been monitoring China's eligibility since February 2016, when China opened its interbank
bond market to foreign participants, and had now decided to include China bonds in its indices after an
extensive review. Once included, China’s weighting in these indices will jump from nil to almost 50%.
Opening up of the
Interbank FX Market for
global investors seeking
currency hedge
Citi announced the
inclusion of China into its
EM and Regional Govt
Bond indices
Feb 27 Mar 7
Citibank won CIBM settlement
agent license, making it the 5th
foreign bank holding such
license and the only US bank
Feb 7
Jan 25
Bloomberg/Barclays announced
a parallel index that includes
China in its Global Agg Index
Bloomberg/Barclays
parallel index launched
Mar 1

2. 2 / 5
Exhibit 2: Pro-forma Index Weight after China Inclusion
Source: Citi Yieldbook as of March 7,2017
Citi has taken a somewhat different route from Bloomberg/Barclays, who announced in January that it
would create a parallel index that combines the Global Aggregate Index and the government and policy
bank component of the China Aggregate Index. The index was launched on March 1st
.
The investors are now eyeing at J.P. Morgan, who owns the widely tracked GBI-EM Diversified Index for its
next move to counter its index business competitors. J.P. Morgan also has been closely following the
development in CIBM, and concluded inclusion of China Bonds “Likely” in a research note in May 2016.
By estimate, total inflow after China’s onshore bond market been fully included could reach US$ 250 Billion.
0.00%
52.45%
0%
20%
40%
60%
China Mexico Indonesia Brazil Poland South Africa Thailand Turkey Malaysia Colombia Philippines Russia Hungary Chile Peru
EMGBI EMGBI+China
0.00%
56.56%
0%
20%
40%
60%
China Korea Indonesia Thailand Malaysia Singapore Philippines HongKong
AGBI AGBI+China
0.00%
3.43% 0.85%
47.33%
0%
20%
40%
60%
China Korea Australia Indonesia Thailand Malaysia Singapore Philippines New Zealand HongKong
APGBI APGBI+China
Emerging Market Government Bond Index (EMGBI)
Asia Pacific Government Bond Index (APGBI)
Asia Government Bond Index (AGBI)

3. 3 / 5
Exhibit 3: Estimate of inflows from full inclusion in Global Indices
Source: Goldman Sachs Research
China Bond was significantly under owned, rebalance in due course
1. Foreign holding less than 2% of domestic market
As of end of Jan 2017, China’s bond market totaled 64 trillion RMB (US$9.25 trillion), making it the third
largest bond market in the world, after US and Japan. Yet, global investors merely own a small piece of the
domestic bond market, less than 2%.
Exhibit 4: Foreign holdings represents only a fraction of the CIBM
Source: Wind, ChinaAMC as of Jan 31, 2017
2. One of the lowest foreign ownership in emerging market
Even comparing to other emerging economies, China’s government issued bonds are far less owned by
global investors. However, we foresee the inclusion into global bond indices will create rebalance by global
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
0
100
200
300
400
500
600
700
800
900
Foreign Holding-Value
Foreign Holding-% of Domestic Market
Index
Estimated AUM
(US$ Billion)
Estimated
China’s Weight
Estimated Inflow
(US$ Billion)
JPM GBI-EM Global Diversified 250 10% 20
Citi WGBI 2000 5-6% 100-120
Bloomberg Barclays Global Aggregate 2000 5.9% 100
Others (ie, Iboxx) 10+
TOTAL Approximately 250

4. 4 / 5
investors.
Exhibit 5: China government bond has one of the lowest foreign ownership among EM countries
Source: Standard Chartered Research as of May 2016
Currency Hedge: One less thing to worry about
One of the shared concerns among global investors sitting on the sidelines is the lack of hedging
instruments. Just before 2017, the onshore interbank FX market was only accessible by domestic
institutional investors and foreign reserve managers (Central banks, SWFs, Monetary Authorities)
On Feb 27, The State Administration of Foreign Exchanges (SAFE) announced that Foreign Institutional
Investors are now allowed to enter Foreign Exchange Derivatives Market. Instead of being a member of the
interbank market, foreign investors seeking FX hedge can do so via their settlement agent banks. The
permitted foreign exchange derivatives transactions are forward, swap, cross currency swap (CCS) and FX
options.
Exhibit 6: Interbank FX market overview
Source :CFETS, ChinaAMC
55
49
42
38
34
28 28 28
22
13
10 10
2.7
0
20
40
60
Mexico Malaysia Brazil Indonesia Poland Peru Turkey South
Africa
Hungary Russia Korea Phillipines China
% of Foreign Ownership of EM Government Bond

5. 5 / 5
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