Foreign investors increase holdings of Chinese bonds

Net purchases by foreign investors in the Chinese interbank bond market reached 970.2 billion yuan ($137.8 billion) in the first 11 months of this year, according to the China Foreign Exchange Trade System.

98.8 billion yuan of these bonds were purchased in November, 48.5 billion more than in the previous month.

Since this year, foreign capital has been constantly flowing into China’s bond market. In the first half of 2019, foreign investors bought a total of 500 billion yuan in Chinese bonds, and the number exceeded 100 billion in both July and September.

The China Foreign Exchange Trade System said that more and more foreign organizations are entering the Chinese bond market. By the end of last month, 2,517 overseas investors had invested in the Chinese interbank bond market, 1,331 of whom made their first investment in the Jan-Nov period.

According to China’s State Administration of Foreign Exchange, the value of Chinese bonds, stocks and funds held by foreign organizations increased from $219.2 billion in 2014 to $444.8 billion in 2018.

This growth is a partial result of a slew of opening-up measures taken in the Chinese financial market in recent years that have facilitated the entry of foreign capital.

Three of the 11 opening-up measures for the financial market announced by the State Council's Financial Stability and Development Committee earlier this year were directly related to the bond market.

“Against this background, both the number of organizations entering the Chinese market and the turnover kept setting records,” said Cong Xiaoli, an analyst from Gold Credit Rating International.

She believes that the measures to further facilitate foreign investors rolled out in the second half of this year, such as the cancellation of investment quota limits for QFII and RQFII, not only demonstrated China’s comprehensive opening-up, but also promoted the healthy development of projects.

Furthermore, the higher interest rate in China, as well as the stability of the yuan, also contributed to the inflow of foreign capital into the Chinese bond market.

As major economies are expected to continue lowering interest rates in the next year, holdings of Chinese bonds by foreign investors may further increase.

Huang Jun, chief Chinese analyst at currency trading platform Forex.com under GAIN Capital Holdings Inc, noted that China has higher economic growth than the US, Japan and Europe, and offers higher risk-free returns as other countries are lowering interest rates.

Given the waning risk appetite of global investors, Chinese investment products featuring high return and low risk are just what the market needs, Huang added.