Recently, the net purchases and holdings of Chinese bonds by foreign institutions have increased significantly month by month. The reporter learned from the People’s Bank of China that foreign institutions have been net buyers of Chinese bonds for nine consecutive months. Since the beginning of this year, the cumulative net purchases have reached nearly 1 trillion yuan. In October, net foreign purchases have exceeded 200 billion yuan; since the third quarter, , the debt holdings of overseas institutions maintained rapid growth, including an increase of nearly 40 billion yuan in October.
Since the beginning of this year, China’s economy has continued to recover and high-quality development has been steadily advancing. Especially since the third quarter, the policy effects have gradually emerged, the endogenous driving force of the economy has continued to strengthen, and the recovery trend has become more obvious. Correspondingly, the investment value and risk-hedging properties of RMB bonds are highlighted.
“Overseas institutions have continued to make net purchases of my country’s bonds, which reflects their confidence in China’s sovereign credit and the continued recovery of the economy.” Ming Ming, chief economist of CITIC Securities, said that on the one hand, against the background of the complex external environment, China’s bonds, especially government bonds, It is a better safe-haven asset in emerging markets, and my country’s bonds are gradually becoming more attractive to foreign investors. On the other hand, our country has always adopted a stable and sustainable macro policy combination, and the value of RMB assets has grown steadily. In addition, infrastructure such as “Bond Connect” and “Swap Connect” were opened and running smoothly, making investment more convenient for foreign investors.
Wen Bin, chief economist of China Minsheng Bank, also said that the net purchase of Chinese bonds by foreign institutions reflects the increased confidence of foreign investors in my country’s economic prospects. At the same time, the characteristics of the U.S. economic slowdown are gradually emerging, and the inversion of domestic and foreign interest rate differentials has narrowed significantly, which has further enhanced the attractiveness of RMB bonds.
In recent years, our country has actively promoted high-level opening up of the bond market to the outside world, and the investment environment in the bond market has continued to be optimized. As of the end of October this year, a total of 1,110 foreign institutions had entered the Chinese bond market to invest, with an average of about 100 new institutions entering the market every year since 2017. Overseas institutions that have entered the market cover more than 70 countries and regions, including major developed countries such as the United States, Canada, the United Kingdom, France, and Germany. The total amount of Chinese bonds held by overseas institutions is 3.3 trillion yuan, an increase of nearly 200% from the end of 2017.
It is understood that all types of foreign investors are actively participating in investment in China’s bond market. Medium- and long-term investors such as overseas sovereign institutions are optimistic about China’s bond market in the long term, accounting for 70% of their bond holdings; about 90 of the world’s top 100 asset management institutions have invested in China’s bond market. As a large amount of foreign capital enters China’s bond market, the influence of my country’s bond market continues to increase. Since 2019, my country’s bonds have been included in the three major international bond indexes of Bloomberg Barclays, JPMorgan Chase, and FTSE Russell, introducing hundreds of billions of dollars in index-tracking funds to my country’s bond market. At present, my country’s bonds have reached the largest weight by country in the J.P. Morgan Global Emerging Markets Government Bond Index, and the weights in the Bloomberg Barclays Global Aggregate Index and the FTSE World Treasury Index have exceeded the expected weights at the time of inclusion. This also fully reflects the confidence of global investors in the long-term improvement of my country’s economy, the continued expansion and opening of the financial market, and the holding of RMB assets.
Looking to the future, Wen Bin believes that the interest rate gap between China and the United States will be inverted or further narrowed, and the RMB is expected to appreciate steadily. At the same time, my country’s financial industry continues to open up to the outside world, bond market investment channels continue to be optimized, and the bond market’s attractiveness to foreign investment is expected to continue to increase.
Tian Lihui, Vice President of Guangxi University and Dean of the Financial Development Research Institute of Nankai University, believes that China’s bond market continues to increase in scale and variety, with increasingly better liquidity, showing a momentum of high-quality development, and increasing investment attractiveness. With the steady growth of China’s economy and the steady advancement of the internationalization of the RMB, China’s bond market will become an important choice for global allocation by overseas institutions, and international investors’ demand for allocation of Chinese assets will also continue to increase.