Foreigners are buying Chinese bonds faster than ever before

Photo by Tim Graham/Getty Images

For all of the growing concern over China’s mounting debt levels, it wan’t enough to perturb foreign investors who bought Chinese bonds more than ever before in September.

According to ANZ, “September saw record foreign investor inflows into China bonds totalling $US11.5 billion”. $US6.2 billion of that total went directly into Chinese government bonds (CGBs), the seventh month in a row that net inflows were recorded.

If left foreign ownership of CGBs at 3.7%, the highest level on record.

The remaining amount — some $US5.3 billion — went into policy bank financial bonds, those issued by the China Development Bank, Agricultural Development Bank of China, and Export–Import Bank of China.

“While foreign ownership of PFBs rose to 2.3% from 2.0% the previous month, [they were] still shy of the high of 2.5% attained in January 2015,” notes ANZ.

The bank believes that strong inflows into Chinese debt, building on the momentum in August, could be due to the Chinese yuan’s inclusion in the IMF’s special drawing right (SDR) currency basket that occurred on October 1.

This chart from ANZ shows monthly capital flows into Chinese bonds and equities over the past three years, overlaid against monthly changes in the value of the Chinese yuan to the US dollar:

Given recent weakness in the yuan against the US dollar, it will be interesting to see whether the acceleration in bond buying will continue in the months ahead.

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