Foreign institutions continue to increase bond market holdings of RMB bonds for 32 consecutive months

　　Our reporter Liu Qi

　　Since the beginning of this year, the enthusiasm of foreign institutions for RMB bonds has remained unabated.

According to the July bond custody data released by China Central Clearing Corporation a few days ago, the denomination of RMB bond custody of foreign institutions was 3,375,187 million yuan in that month, an increase of 75.352 billion yuan from June, and the month-on-month increase hit a new high since March this year.

In addition, as of July, overseas institutions have increased their holdings of RMB bonds for 32 consecutive months.

　　Judging from the structure of bonds held by foreign institutions in July, the scale of treasury bonds was the highest, reaching 2,184.966 billion yuan, accounting for 64.74%; the second was policy bank bonds, with a scale of 1,034.476 billion yuan, accounting for 30.91%.

　　According to data released by the Shanghai Headquarters of the People's Bank of China on August 6, in July, five new overseas institutional entities entered the interbank bond market.

As of the end of July, a total of 972 foreign institutions have entered the market, of which 487 have entered the market through direct investment channels, 686 have entered the market through the "Bond Connect" channel, and 201 have entered the market through the above two channels at the same time.

　　“The demand for RMB bonds is the main reason for foreign institutions to increase their holdings of RMB bonds.” Pan Helin, executive dean and professor of the Institute of Digital Economy, Zhongnan University of Economics and Law, said in an interview with a reporter from the Securities Daily. The major bond index providers have all included Chinese government bonds in their main indexes, which has created demand for overseas investment in RMB bonds; on the other hand, China's outstanding economic performance during the COVID-19 epidemic last year and this year has boosted the confidence of foreign investors.

　　At present, China's bond market has developed into the world's second largest bond market, with rich varieties, complete trading tools, safe and efficient infrastructure, and considerable depth and breadth.

In recent years, the People's Bank of China and the State Administration of Foreign Exchange have steadily promoted the orderly opening of the inter-bank bond market.

At present, foreign institutional investors can invest in my country's inter-bank bond market through multiple channels such as qualified foreign institutional investors, renminbi qualified foreign institutional investors, direct market entry, and "Bond Connect".

At the same time, as FTSE Russell finally confirmed in March this year that Chinese government bonds will be included in the FTSE World Treasury Bond Index, Chinese bonds will be fully included in the Bloomberg Barclays Global Aggregate Index, the JPMorgan Chase Global Emerging Market Government Bond Index and the FTSE World Treasury Bond Index. The three major bond indexes tracked by global investors.

　　The stability and improvement of China's economic fundamentals have laid a solid foundation for attracting foreign institutions to continue to flow into my country's bond market.

In the first half of the year, my country’s economic highlights were outstanding, with GDP increasing by 12.7% year-on-year, ranking among the top of the world’s major economies.

　　"Since 2020, foreign purchases of domestic bonds accounted for about half of the full-caliber foreign debt increase. This is mainly because China's economy took the lead in recovering, the bond market continued to open, the return on RMB assets was good, and the hedging properties continued to increase." Deputy State Administration of Foreign Exchange Director and spokesperson Wang Chunying said at a press conference held by the State Council Information Office in July that foreign investors will continue to invest in my country's bonds.

In October of this year, China’s government bonds will be officially included in the FTSE Russell World Bond Treasury Index. So far, all major international related indexes will cover RMB bonds.

At the end of June, foreign capital accounted for 3.1% of the domestic bond custody volume, and there is a lot of room for improvement in the future.

However, it may not grow rapidly, because as the global economy recovers, external liquidity and interest rate levels will return to normal.

Therefore, the pace of foreign investment in increasing domestic bond holdings should be more stable, focusing on long-term investment and diversified asset allocation.

　　Pan Helin said that in the context of China's continued improvement in the economy and the continuous expansion of the financial market, China's bond yields are stable and interest rates are relatively high. In the future, foreign institutional investors are expected to further increase their holdings of renminbi bonds.

(Securities Daily)