Why foreign investors favor RMB bonds
Jin Guanping
The attractiveness of renminbi bonds to overseas institutions continues unabated.
According to data released by the People's Bank of China, more than 900 foreign institutions have entered the Chinese inter-bank market, holding debts of 3.3 trillion yuan.
According to data released by China Central Clearing Corporation, in May, the denomination of RMB bond custody held by overseas institutions increased by 41.317 billion yuan from April.
Since China’s bond market accelerated its opening up in 2016, foreign investors’ investment in China’s domestic bond market has maintained an average annual double-digit growth. Where does the appeal of RMB bonds come from?
First, the fundamentals of China's economy are stable and improving, laying a solid foundation for attracting continued inflow of foreign capital.
Since 2016, the long-term and stable characteristics of foreign capital holdings of RMB bonds have become prominent. This is because the overall situation of China's economic and social development has remained stable, and major macroeconomic indicators have continued to show positive changes.
Especially in 2020, China's GDP will grow by 2.3% year-on-year, making it the only major economy in the world to achieve positive growth.
The latest "Global Economic Outlook" report released by the World Bank raised China's economic growth forecast this year to 8.5%.
This is an important reason why China's bond market can continue to drain.
Secondly, interest rate differentials are another major factor in the continuous increase of renminbi bond holdings by foreign institutions.
Compared with developed economies, China’s government bond yields have obvious advantages, and China-US interest rates continue to remain at a relatively high level.
Although the interest rate gap between China and the United States has narrowed this year, it has not had a significant impact on the holdings of overseas institutions.
This is because RMB assets exhibit strong safe-haven asset properties globally.
Under the fundamental tone of China's economic development and a sound monetary policy, interest rates are expected to remain basically stable, and the interest rate differential between China and the United States may continue to remain at a high level. This has given foreign institutions the motivation to continue to increase their holdings.
Third, the opening of China's financial market into the fast lane has created a good environment for "opening the door to welcome customers."
The Chinese bond market has developed into the second largest bond market in the world, with a rich variety, complete trading tools, safe and efficient infrastructure, and considerable depth and breadth.
The State Administration of Foreign Exchange recently issued a quota of 10.3 billion U.S. dollars to 17 qualified domestic institutional investors (QDII), the largest single approval quota since the implementation of the QDII system.
Since September last year, the foreign exchange bureau has issued a total of 7 rounds of QDII quotas, showing the characteristics of normalization.
China's bond market also needs to continue to accelerate the pace of opening up.
At present, the proportion of foreign capital in China's bond market still has room for substantial improvement.
By the end of last year, foreign-owned bonds accounted for 3% of China's total bond market custody, which was lower than the United States (28%), Japan (14%), and also lower than Brazil (9%) and other emerging market countries.
In recent years, the central bank has unified institutional arrangements for bond market access and fund management, which has improved the convenience of overseas institutions to enter the market, and further optimized and facilitated the remittance and remittance of investment funds.
Next, it is still necessary to actively improve relevant policies and institutional arrangements, and continue to promote the opening up of China's bond market.
As the bond market continues to open up, bonds may become an important position for China's financial market to attract foreign investment.
China’s economy is stabilizing and improving, domestic demand is recovering rapidly, investment momentum is strong, consumption has improved significantly; the balance of payments is balanced, foreign exchange reserves are abundant, and China continues to deepen reform and opening up, all of which will support investors’ interest in China’s economic and financial market development. confidence.
By investing in RMB assets such as Chinese bonds, international investors will also better share the dividends of China's economic development.
Jin Guanping
Jin Guanping