The answer seems to lie with the degree of flexibility in both domestic and international markets. By flexibility I mean the ability of an economy to absorb shocks, stabilize, and recover. In domestic economies that approach full flexibility, imbalances are likely to be adjusted well before they become potentially destabilizing.
If such guarantees were provided, the highly liquid policy bank bonds could become a very attractive investment option. Overall, there is surely room for China to attract more foreign institutional investors to China’s government bond market. The foreign institutional investor share has increased over the recent years – but there is a lot of potential for further growth. Especially compared to other bond markets.