China appoints JPMorgan as primary dealer

Ministry of finance officials select the US bank as a primary dealer of government bonds, bringing the total number of foreign banks that can trade in the primary market to three.
China's ministry of finance (MoF) has appointed JPMorgan as a primary dealer of Chinese government bonds. The appointment will allow the US bank to underwrite government bonds issued by the MoF onshore. The move comes after JPMorgan received approval from the China Banking Regulatory Commission to establish a locally incorporated bank in China last July.

ôWe are very active in the secondary market, but for the first time now we have access to participate in the primary market. Underwriting government bonds also gives us better information and good assessment of the market environment,ö says Carl Walter, chief executive of JPMorgan Chase Bank China. ôMoreover, there are very few foreign financial institutions that are primary dealers and this is an indication that the capital markets will continue to open. Our business here is based on that.ö

Over the past few years, JPMorgan has expanded its trading capacity in local currency products, foreign exchange and risk-management instruments.

ôUp until three years ago, there were no products in the Chinese domestic market that enabled the hedging of foreign exchange or interest rate risk,ö continues Walter. ôBut lately we have seen the growth of an interest-rate swap market, and we expect financial futures products to be launched soon. Our operation is also growing rapidly and will be a significant contributor to JPMorganÆs revenues in China and elsewhere in the region over the next few years.ö

Walter comments that the yield curve, which is the basis for the pricing of bonds and swaps, is a work in progress and a deep government bond market is the foundation of that. As foreign institutions become more involved, so will the bond market evolve and the interest rate environment will gradually become more relaxed.

JPMorgan is the first US bank to be appointed primary dealer. Other dealers of government bonds are HSBC, which was appointed three years ago, and Standard Chartered which was appointed alongside JPMorgan.
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