(Economic Observation) FTSE Russell will be included in China's national debt, where is the "magnetism" behind the 130 billion US dollars?

  China News Agency, Beijing, March 30th (Reporter Xia Bin) Boots are on the ground!

On March 29th, London local time, the FTSE Russell Company confirmed that starting from October this year, the Chinese government bonds will be included in its main bond index, the FTSE Russell Global Government Bond Index (WGBI).

  So far, the three major global bond indices have formally "embrace" Chinese bonds.

Previously, Chinese bonds have been included in the Bloomberg Barclays Global Aggregate Index and the JPMorgan Chase Global Emerging Market Government Bond Index.

  The weight of Chinese government bonds in the WGBI will be 5.25%, which will be included in phases within 36 months starting on October 29, 2021 to ensure an orderly transition for the market and investors.

What impact will this have on the Chinese bond market?

  Shi Jiachen, general manager of Deutsche Bank’s Global Markets Department in China, told a reporter from China News Agency that the “indexing” means that China’s bond market has entered the three major global bond indexes, which will attract more international bonds to China’s bond market in the medium and long term. Capital investment, which includes both passive investors tracked by international indexes, and more other types of investors in the future, to promote the open and diversified development of the bond market.

  In addition, the "Incoming Index" also injects new content and vitality into the foreign exchange market, enhances the breadth and depth of the market, and accelerates the development of RMB internationalization.

  Zhang Jinqiu, Vice President and Co-Director of Global Capital Markets of HSBC Bank (China) Co., Ltd., pointed out that WGBI is the flagship index with the largest amount of funds tracked by FTSE Russell. The asset management scale tracking the index amounts to approximately US$2 to 2.5 trillion.

HSBC estimates that based on the 5.25% inclusion weight announced this time, it is expected to attract a total of approximately US$130 billion in foreign capital to flow into the Chinese bond market.

  At the same time, with the inclusion of all the three major international mainstream indexes and the increasing attractiveness of China’s bond market, HSBC expects that by October 2024, after WGBI completes the inclusion of Chinese bonds, the scale of foreign investors’ holdings of Chinese government bonds will start from the end of February this year. China’s 2.1 trillion yuan (RMB, the same below) increased to approximately 3.8 trillion yuan.

  Where is the "magnetism" of China's bond market?

The Global Research Department of Standard Chartered Bank previously issued a report stating that China's domestic bond market is currently the only bond market in the world that has the following advantages: first, considerable yields; second, positive prospects for the renminbi foreign exchange market; third, the depth and depth of the domestic market The breadth is sufficient to cope with the large-scale capital inflows that may be brought about by the large-scale easing of central banks in major developed economies.

  Zhang Jinqiu said that in recent years, the opening up of China’s bond market has continued to deepen, and a number of measures have been launched to facilitate foreign investors’ participation in China’s bond market. The infrastructure has been continuously improved and liquidity has increased, which is also reflected in market volatility. stability.

As of the end of February this year, overseas institutions have increased their holdings of Chinese bonds for 27 consecutive months.

"We are confident that in the future, foreign investors' interest in China's bond market will continue to increase, and the influence of China's bond market in the international financial market will also be further enhanced."

  According to Chen Jianheng, head of fixed income research at CICC, this year, driven by factors such as the inclusion of indexes, high interest spreads, and stable exchange rates, foreign institutions will continue to support China's bond market by capital allocation and net transaction inflows.

  Wang Chunying, deputy director and spokesperson of the State Administration of Foreign Exchange, said in an interview with a reporter from China News Agency that the current period is a period of increased foreign capital allocation and warehouse building. Therefore, everyone sees that more foreign capital flows in and will enter a period of stable development in the future.

  "China's financial market continues to open to the outside world, the bond market is still a relatively stable channel for foreign investment, and global investors also need to allocate RMB assets. From the perspective of risk and development, we will continue to strengthen monitoring." Wang Chunying said.

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