Oct 28, 2021 08:52 PM

Overseas Investors in Chinese Bonds Get Four More Years of Tax Breaks

Beijing’s central business district. Photo: VCG
Beijing’s central business district. Photo: VCG

Policymakers have decided to extend a tax break for overseas investors in China’s onshore bond market for four years, as enthusiasm for the market’s relatively high yields continues to grow.

Overseas institutional investors’ income from bond interest will be exempt from corporate income tax and value-added tax (VAT) until the end of 2025, according to a statement issued after a State Council executive meeting chaired by Premier Li Keqiang. The exemption, launched in 2018, was originally scheduled to expire in early November.

The extension aims to encourage foreign investment in China, according to the statement.

Investors outside the Chinese mainland are increasingly putting money into the world’s second-largest bond market, in part due to the attractive yields on offer. As of the end of September, overseas holdings of outstanding onshore bonds reached $617.6 billion, up from $512.2 billion at the end of last year, according to data from the State Administration of Foreign Exchange (SAFE).

 Read more  
Opinion: How Strong Is Foreign Demand for Chinese Government Bonds?

“Onshore bond yields are relatively high and the yuan exchange rate is stable, so the bond market is valuable for investment,” Wang Chunying, a deputy head of SAFE, said at a briefing last week. So far this year, 10-year Chinese government bonds’ annual yields have fluctuated narrowly around 3%, much higher than those of their counterparts in the U.S. and European Union.

Overseas investors’ holdings as a share of China’s 128.1 trillion yuan ($20 trillion) onshore bond market was 3.1% by the end of September, up 0.2 percentage points from the end of last year, Wang said. The share is still low, which means there is large space for growth, she said.

In the Chinese context, overseas investment includes cash coming from Hong Kong, Macao and Taiwan.

Before the tax exemption policy began in 2018, overseas institutional investors’ interest income from nongovernment bonds faced corporate income tax generally ranging from 7% to 20%, and a 6% rate of VAT, according to law firm Fieldfisher LLP. Profit from bond sales is generally exempt from corporate income tax, Fieldfisher said.

It is common for governments around the world to exempt interest income from nongovernment bonds from VAT, accounting firm KPMG LLP said.

Nowadays, Chinese government and policy bank bonds are the two main types of bonds held by overseas investors, accounting for over 90% of total overseas investment in the market in August. Overseas investment in onshore corporate bonds is negligible, according to official data.

Contact reporter Guo Yingzhe ( and editor Joshua Dummer (

Download our app to receive breaking news alerts and read the news on the go.

Get our weekly free Must-Read newsletter.

You've accessed an article available only to subscribers
Share this article
Open WeChat and scan the QR code
Get our CX Daily, weekly Must-Read and China Green Bulletin newsletters delivered free to your inbox, bringing you China's top headlines.

We ‘ve added you to our subscriber list.

Manage subscription
Caixin-Sinica Business Brief: TikTok CEO Pushes Back on Security Concerns