Overseas investors racing into China's bond market amid gains, prospect

Updated: June 2, 2020 Source: Xinhuanet.com
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Attracted by both higher yields and preferential policies, overseas investors have continued to pour money in the Chinese bond market.

Overseas investment in Chinese bonds has expanded significantly since 2015, the China Securities Journal reported.

According to data first disclosed in June 2014, the China Central Depository & Clearing Co., Ltd. managed 436.78 billion yuan (about 61.26 billion U.S. dollars) of onshore RMB bonds for overseas institutions, but the figure rose to 2 trillion yuan at the end of April this year, surging for 17 consecutive months since November 2018.

Despite fluctuations in overseas financial markets caused by the COVID-19 outbreak since the beginning of the year, net purchases by overseas institutional investors in the inter-bank bond market climbed from 54.2 billion yuan in January to 141.4 billion yuan in April, according to the China Foreign Exchange Trade System.

While higher yields are an incentive, the core reason for rising overseas investment in the Chinese bond market is the steady opening-up of the country's capital market.

Since 2005 when overseas institutional investors were first introduced into the inter-bank bond market, China has made solid progress in opening up its debt market.

Now almost all types of compliant overseas institutions are qualified for entry as China has launched various programs to broaden the access to its bond market.

Along with the opening-up of the Chinese bond market, major international bond indexes have included Chinese bonds, elevating the exposure of Chinese debt market and hastening capital inflows.

The RMB's inclusion in the International Monetary Fund's Special Drawing Rights currency basket in 2016 and the consistent progress the Chinese currency has made in its internationalization have also boosted foreign investors' interest in the Chinese bond market.

In the latest move to open up the bond market, China on May 7 announced plans to scrap quota restrictions on two major inbound investment schemes and further streamline the procedures for foreign institutional investors.

The country will remove quotas on the dollar-denominated qualified foreign institutional investor (QFII) scheme and its yuan-denominated sibling, RQFII, according to a new rule issued by the People's Bank of China and the State Administration of Foreign Exchange, which will take effect on June 6.

Qualified investors will be allowed to freely choose the currency and time of remitting money to the country and are expected to see simpler outward remittance procedures for securities investment gains, according to the rule.

Global investors are increasingly interested in the Chinese bond market, said a recent survey by Invesco, an independent investment management company based in the United States.

Investment expansion will be a long-term trend as Chinese bonds have been one of the best-performing assets this year, said Rob Waldner, a strategist with Invesco. 

Editor: 刘婷