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From our analysis, we found the following most relevant:China's rapidly expanding $15tn mainland bond market offers some tantalising prospects for pension funds and other institutional investors that have seen sources of income decline and disappear from their traditional hunting grounds in the US and Europe.But a thicket of legal, regulatory, and trading risks lies ahead for international investors, according to the IMF, which has warned that the worlds second-largest fixed income pool requires sweeping reforms to raise standards.Low liquidity and a shallow market present fundamental problemsForeign investors do not have sufficient derivative tools to hedge against exchange rate risk, interest rate risk and credit risk, the IMF noted in a review of the market.Bond defaults by Chinese issuers were unknown before 2014.Nor are foreign investors allowed to trade bond futures. Foreign investors do not have sufficient derivative tools to hedge against exchange rate risk, interest rate risk and credit risk, the IMF noted in a review of the market.Bond defaults by Chinese issuers were unknown before 2014But the states willingness to bail out state-owned enterprises and local government financing vehicles has generated a deeply entrenched system of implicit guarantees for lenders, leading to excessive risk taking and capital misallocation.Calls for reforms face resistance, not least from lending banks which would be forced to increase their capital buffers against losses on bad loans.RecommendedAnalysisChinese business & financeChina's bond market shines as Treasuries turn treacherousThe default rate in China's bond market, which is much lower than other international markets, is expected to rise but how far is unclearChinese bond issuers pay for ratings themselves, a clear conflict of interest. China's rating industry needs to rebuild credibility, said the IMF.Further complicating matters is the fact that the oversight of rating agencies is split between different regulators depending on the type of bond issuer