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E-mail China.org.cn, May 21, 2024
Securities Times:
Since the fourth quarter of last year, foreign institutions have started to significantly increase their holdings of Chinese domestic bonds. Can you introduce the specific situation? And what is the outlook for foreign investors in the Chinese bond market? Thank you.
Wang Chunying:
Thank you for your questions. Regarding the increase of recent foreign capital inflows into Chinese domestic bonds, I would like to share the following points:
First, the scale of investment has increased significantly. Last year, the net increase in foreign bond holdings was $23 billion, while in the first quarter of this year, it already reached $41.6 billion. As of the end of March, over 1,129 foreign institutions from over 70 countries and regions had entered the Chinese bond market, with their bond holdings surpassing $570 billion, accounting for approximately 2.6% of the total domestic bond custody, up 0.2 percentage points from late last year. Second, the investment structure remains reasonable. The holding entities, including foreign central banks and financial institutions like banks, increased their holdings of China's domestic bonds in an orderly manner, especially medium- to long-term bonds such as government bonds and policy financial bonds. Our statistics show that between October last year and March this year, foreign investment in bonds with a term of over one year accounted for 56% of the total. Third, the investment yields remain stable.
Looking ahead, the trend of foreign institutions' investment in China's domestic bonds is likely to maintain steady growth. I would like to elaborate on a few aspects.
From an economic perspective, first, the macro environment provides support. The underlying trend of long-term economic growth remains unchanged, with various macro policies providing momentum for continued domestic economic recovery, offering foreign investors a sound macroeconomic environment. Second, the investment value is assured. The RMB exchange rate remains stable, and RMB assets have shown unique returns compared to global assets, helping investors diversify risk. Additionally, China's bond market is the second largest in the world, is growing in terms of breadth and depth, and has strong liquidity, which enhances the investment value of RMB bonds. Third, there is demand for global allocation. The use of RMB in global cross-border transactions has been steadily increasing. Mr. Zhu already shared the latest figures. The increasing international influence of RMB makes RMB assets an important choice for foreign investors' global portfolios.
From a policy perspective, the PBC and SAFE will continue to pursue market-oriented, law-based and internationalized development, steadily expanding the opening-up of China's bond market, and facilitating the participation of foreign investors. We are currently working on the following areas. First, we are opening repurchase operations to more foreign institutions, enriching liquidity management tools for foreign investors. Second, we continue to promote the domestic RMB bonds in offshore markets as widely accepted and qualified collateral. Earlier this year, bonds under the Bond Connect program were allowed as the eligible collateral for the RMB liquidity facility. We are also exploring additional scenarios, such as using bonds under Bond Connect as margin for Swap Connect. Third, we are optimizing the mechanisms for overseas institution's direct market entry, Bond Connect and Swap Connect, while continuing to enhance communication and exchange with foreign institutions, creating a better investment environment. Overall, China has continued to improve the institutional opening-up of the financial market, optimized the investment environment and refined services. Foreign capital investing in China's bond market has stable and sustainable room for improvement. Thank you.
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