Buying 2 trillion yuan in 4 months: Chinese government bonds become a new "safe haven"
Column
China's bonds are "fragrance". Fundamentally, China's economy is growing against the trend.
According to the "Wall Street Journal" report, the proportion of foreign capital invested in China's national debt has increased rapidly since 2018 and has exceeded RMB 4.3 trillion in July this year.
In March of this year, the scale of Chinese government bonds held by foreigners was 2.26 trillion yuan. In just four months now, the purchase of Chinese government bonds by foreign investors has increased by 2.04 trillion yuan, and their holdings have increased by 90% in four months. On average, they have bought 510 billion yuan a month. This is the fastest inflow period since 2018.
At this pace, Chinese government bonds purchased by foreign investors this year will reach 6 trillion yuan, equivalent to more than a quarter of GDP in the second quarter.
It seems that although some countries slander China over and over again, as if they are trying to chase and block China's development, capital still has the most sensitive sense of smell. In the end, "scent is not fragrant", those clever investors are "clear" in their hearts.
Why is China's national debt "fragrant"?
In fact, Chinese bonds are already very "fragrance"; but they really become hot, thanks to the establishment of four time nodes to ignite foreign investors in three years.
July 2017 is the first point in time. Previously, foreign investors needed to go through the Hong Kong market to purchase Chinese bonds and set up an account in the Mainland before they could operate. However, in July 2017, the Mainland and Hong Kong established a "Bond Connect" system, allowing foreign investors to directly invest in all bonds in China's inter-bank bond market without changing their trading habits.
On August 30, 2018, the executive meeting of the State Council decided that the interest income of foreign investors' investment in domestic bonds would be temporarily exempted from corporate income tax and value-added tax. The period was tentatively set for three years, and a firewood was added.
These two fires quickly received a positive response from the market.
On April 1, 2019, more than 300 Chinese government bonds and policy bank bonds denominated in RMB began to be included in the Bloomberg Barclays Global Composite Index. RMB-denominated Chinese bonds have become the fourth largest currency-denominated bonds after the US dollar, the euro, and the Japanese yen. According to preliminary estimates, more than 100 billion US dollars of index tracking funds can be introduced into the Chinese bond market.
On February 28 this year, nine Chinese government bonds were officially included in the JPMorgan Chase Global Emerging Markets Government Bond Index. JPMorgan Chase Index and Bloomberg Barclays Index are the three major global bond market indexes.
Obviously, the main source of igniting foreign investment in China's bond market is the opening of China's financial market.
Let global capital actively "use me"
Chinese government bonds are favored by foreign investors, of course, in the end they still have a relatively high rate of return. Among several Chinese bonds traded by foreign investors, 10-year government bonds are the stars favored by foreign investors. Because the yield of China's 10-year treasury bond has become the world's first.
As of the real-time data at press time on July 20, among the major economies, China's 10-year bond yield is 3.045, the U.S. 10-year bond yield is 0.605, the UK is 0.143, Japan is 0.025, Germany is minus 0.468, and France It is negative 0.171. Among the major western economies, only Italy outperformed other countries, but only 1.166—this is a horizontal ratio.
From a vertical perspective, the rate of return on China's national debt is also more stable. Although compared with last year, the yield on China's government bonds has dropped slightly, but has remained above 3. The yield on U.S. Treasuries is much lower than the same period a year ago. On July 19 last year, the U.S. Treasury yield was still 2.057. This year, the closest opening day to July 19 last year was July 16, and the yield has dropped to 0.634.
Declining long-term Treasury bond yields usually means that the probability of a long-term economic crisis increases. But if U.S. bond yields continue to decline for a long period of time in the future, the US dollar may lose its "safe haven" characteristics. The awareness of risk aversion also forces foreign investors to purchase safer and more stable Chinese government bonds to share risks.
According to public data from the Central Bank, as of the end of June, the balance of China's bond market was RMB 108 trillion, ranking second in the world. A total of nearly 900 foreign central banks and legal entities have entered the interbank bond market, covering more than 60 countries and regions around the world.
The "fragrance" of China's bond market, in addition to meeting the needs of global investors for safe investment, is also good for meeting our own development needs.
At present, foreign investors mainly eat China's interest rate bond income. In the next step, we can expand the connection of stable and reliable urban investment bonds, credit bonds and overseas capital, and guide overseas funds to help local construction.
It can be said that China's bonds are "fragrance". From a fundamental point of view, the Chinese economy has a more stable currency value than other major economies at the moment, the financial mechanism is differentiated, and the economy is growing against the trend.
The future task is to stabilize this phased comparative advantage and turn foreign capital into a long-term import and fully borrowable dividend.
□ Xu Lifan (Columnist)