Sales of Chinese onshore bonds from Foreign-owned funds and companies skyrocketed by more than 100 percent in May. The surge has been seen by analysts as an indication of the growing confidence of the global market in China's immediate recovery and its potential return to growth.
According to data published by the State Administration of Foreign Exchange late last week, net purchases made by foreign funds in May increased by 104 percent, or more than double the purchased made in April. Total purchases for the month reached around $19.4 billion.
The data coincides with reports from Chinese banks, which recorded a 61 percent increase in foreign exchange trading for the month, reaching over $23.8 billion. The increase indicates the willingness of global investors in exchanging their foreign currencies into yuans, further proof of the world's growing confidence in the country's economy.
China's strong capital inflows for the past few months have also been made clear in data published by other financial institutions. The Shanghai Clearing House, which mainly tracks onshore bond positions, has reported a significant increase in foreign ownership of onshore bonds for the past couple of months.
The company estimates that the total value of onshore Chinese bonds held by non-mainland investors could be somewhere around 2.43 trillion yuan or roughly $343.4 billion as of May. This roughly translates to about 2.6 percent of the total, the highest proportion on record.
The clearinghouse further revealed that for May, holdings of Chinese bonds by foreign investors had increased by 114.6 billion. The highest growth recorded in over 18 months. Morgan Stanley economists had stated that the interest of international investors in Chinese onshore bonds has increased over the past months given its strong returns. There is also a rather bleak market as yields continue to be low globally amid the economic downturn caused by the coronavirus pandemic.
The increasing positions of overseas investors in China's bonds can also be attributed to the country's continued opening-up efforts. Last month, the People's Bank of China (PBOC), the country's central bank, has implemented a new measure that removed the investment quota of qualified foreign investors. The move allowed overseas institutional investors to invest without limits.
Government data showed that over 828 overseas financial institutions and funds had invested in onshore bonds through its recently implemented Bond Connect mechanism. The implementation of the scheme had allowed for open trading and acquisition of Chinese bonds by overseas trading. As of May, 12 companies had acquired Chinese bonds for the first time.
