Foreign investors have piled in to debt issued by China’s policy banks at a record pace this year, lured by the liberalisation of the country’s bond markets and its faster economic recovery from coronavirus.
Net inflows into policy bank bonds totalled Rmb300bn ($44bn) in the first eight months of the year, data from bank Natixis shows, or more than the total between 2016 and 2019. The flows also exceeded those into Chinese government debt.
The rush of buying comes as foreign investors take a record share of China’s overall bond market. Relatively higher yields have enticed global funds after the emergence of Covid-19 prompted central banks in the west to cut interest rates to historical lows.
But surging demand for policy bank bonds, sold by three government-controlled institutions heavily involved in lending to official projects, also shows that foreign inflows are supporting a sector critical to China’s state-driven response to the crisis.
Alicia Garcia-Herrero, chief economist for Asia Pacific at Natixis, said the policy banks were “instrumental” in China’s economic recovery, which has been swifter than that in the US and Europe. The bonds have attracted demand from foreign investors that “tend not to touch commercial banks onshore”, she said.