Investors plowed billions into Chinese bond markets last year, reflecting the growing attractions of its debt to yield-hungry investors.
Faced with the dilemma of ultralow to subzero yields on their own sovereign debt, U.S. and European fund managers, pension funds, along with global central banks, have latched onto China’s debt markets as Beijing looks to open up its capital markets to the rest of the world.
China’s foreign exchange regulator said Friday inflows into onshore Chinese debt hit a record $186.1 billion in 2020, bringing the total balance to $512.2 billion.
Growing interest among overseas central banks was one of the key driving forces for the steady accumulation of Chinese debt in foreign hands, according to Wang Chunying, spokesman for the State Administration of Foreign Exchange (SAFE).
Central banks now held $263.7 billion of Chinese bonds, according to SAFE data.
The recent strength in China’s currency, backed by the relative outperformance of Chinese economic growth over other developed economies in 2020, despite the coronavirus pandemic, have also underpinned investors’ growing willingness to buy yuan-denominated debt.
The U.S. dollar fetched 6.4819 yuan
on Friday, around the renminbi’s strongest levels since June 2018.
And analysts say inflows are only expected to increase as index-providers raise the weighting of Chinese government bonds in their benchmarks.
Goldman Sachs said it forecast investors could plow as much as $140 billion of additional funds into Chinese debt this year, following the decision by FTSE Russell to include Chinese government paper in its world government bond index.