China's rapid recovery from the COVID-19 pandemic has increased investor confidence in its financial markets. FTSE Russell announced its decision to list Chinese government bonds on the London FTSE Russell Index's flagship World Government Bond Index from October next year. Notably, given the current global zero-rate context, 10-year Chinese government bonds yield around three percent.

The former Chase Chief Economist, Anthony Chan, from JPMorgan, said that the change of FTSE adding Chinese government bonds to its key index, is long overdue. He pointed out that China is now the second largest bond market in the world, and meanwhile, many of these indices would like to see different changes, such as increased liquidity and easier foreign exchange trading. Therefore, he thinks that China's bond market is so big that being selected by FTSE Russell was bound to happen. "This is something that had to take place. It was just a matter of time, not whether it would take place," Chan stated.

"This is a step that had to take place much earlier," Daniel Gros, Director of the Centre for European Policy Studies, told CGTN Dialogue. He thinks that it is an important step and sends a positive signal that the internationalization of China's RMB and the Chinese financial system are still moving forward, albeit slowly. And over time, he believes that the RMB could soon become a major international currency.

According to Pan Gongsheng, deputy governor of the People's Bank of China and director of State Administration of Foreign Exchange, international investors held $410.69 billion in Chinese bonds at the end August, less than three percent of the Chinese bond market.

Professor John Gong from the University of International Business and Economics, pointed out that while China is the second largest bond market in the world, foreign investors hold a very low percentage of it. He believes that the Chinese bond market has huge potential for more international investors to participate in the pool.

In terms of long-term trends, Anthony Chan sees China's future growth and its openness as very positive, and it's also important for China's financial markets to integrate into the global financial markets. He expected that the flexibility of the market could be improved, foreign exchange controls could be removed in the near future.

Chan also noted that, under the impact of the coronavirus pandemic, China's economy is recovering very strongly, while in the United States and Europe, these countries' economies will contract on a year over year basis. He stressed that before the COVID-19 pandemic, both Bloomberg and JP Morgan indices have been focusing on the Chinese financial markets since 2018.

"This is a great opportunity for diversification and it's a great opportunity to just have more access to more financial market vehicles that the international foreign investor has exposure to," Chan said.

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