CHINA is stepping up the pace of reform in its US$12 trillion bond market, seeking to lure more foreign investment as the yuan slumps and threats to economic growth increase.

Over the past few weeks, authorities have announced a wave of new rules designed to help the nation’s bonds gain entry into major international indexes. China’s central bank has also eased restrictions on credit-ratings companies, while the government has instructed officials to more quickly unify a market with multiple regulators and trading venues.

The changes will make Chinese bonds more attractive to foreigners at a time when the country could use more capital inflows to stabilize the yuan and fund corporate borrowers who’ve been squeezed by a crackdown on domestic shadow banking.

The new regulations may also bolster the government’s reform credentials as it wrangles with U.S. President Donald Trump’s administration over tariffs and market access.

“The main direction of China’s bond market is to integrate and open up,” said Ming Ming, a former People’s Bank of China official who’s now head of fixed income research at CITIC Securities Co. in Beijing. “This is definitely an important task regulators are pushing for.”

While some of the changes may appear minor at first blush, they could have a big impact on foreign investors. Among the most important tweaks: Overseas institutions will be exempt from paying certain taxes on interest gains, and they’ll be allowed to conduct block trades through the bond trading link with Hong Kong.

The changes were among several needed for China’s entry into the Bloomberg Barclays Global Aggregate Index in April 2019, a move that’s expected to spur inflows worth billions of dollars.

Other recent announcements by China include a settlement process that will bring the country in line with other markets, and new rules for ratings firms that will allow those with licenses for the interbank bond market to apply for permission to operate on exchanges and vice versa. More efforts to reduce fragmentation are likely after the country’s State Council highlighted a unified debt market as a priority in a statement last month.

“This is the latest step in the government’s ongoing efforts to deepen the domestic bond market,” said Christopher Lee, an analyst at S&P Global Inc. in Hong Kong. (SD-Agencies)