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International investors continue to be enthusiastic about participating in China's bond market. Data released recently by the State Administration of Foreign Exchange showed that in the first half of 2024, the scale of foreign investment in RMB bonds was relatively high, with net foreign investment increasing domestic bond holdings by nearly US$80 billion in the first half of the year, the second highest value in the same period in history. In addition, data from the Shanghai headquarters of the People's Bank of China showed that overseas investors have increased their holdings of Chinese bonds for 10 consecutive months.

Data shows that by the end of June, the scale of bonds held by foreign investors in the interbank market hit a new record high of 4.31 trillion yuan. Foreign investment participation is also continuing to expand. In June, 7 new foreign institutions entered the interbank bond market. By the end of June, a total of 1,133 foreign institutions entered the market, of which 567 entered the market through direct investment channels, 823 entered the market through the "Bond Connect" channel, and 257 entered the market through both channels.

Foreign investors also showed new investment tendencies when allocating RMB bonds. Yu Lifeng, senior analyst at Orient Securities Research and Development Department, said that the main types of bonds that foreign investors increased their holdings were interbank certificates of deposit, policy financial bonds and government bonds. Considering the exchange rate lock-in benefits, the comprehensive returns of foreign institutions allocating RMB bonds are higher than those of allocating US bonds.

"Based on the USD/RMB exchange rate and the one-year swap point at the end of June, foreign capital purchased one-year Chinese government bonds and signed one-year forward contracts at the same time, with an overall yield of 5.85%, which is significantly higher than the 4.36% yield on one-year US government bonds." Yu Lifeng said that due to the strong certainty of carry transactions at the short end, the scale of this round of foreign capital inflows to increase holdings of short-term interbank certificates of deposit has exceeded 600 billion yuan, exceeding the sum of the increase in government bonds and policy financial bonds.

In addition, the safe-haven attribute is also one of the reasons why foreign institutions increase their holdings of RMB bonds. Jiang Huifen, deputy director of the Financial Markets Department of the People's Bank of China, recently said that RMB bonds have a high value of diversified investment, and their safe-haven function is constantly increasing. The yield of RMB bonds is less correlated with the bond yields of G7 countries and other emerging economies. It is estimated that the yield correlation between the 10-year treasury bonds of China and the United States in 2024 will be only 0.05.

Looking ahead to the future market, Yu Lifeng believes that RMB bonds are still in the early stages of foreign capital inflows. Foreign capital mainly holds government bonds, policy bank bonds and interbank certificates of deposit. In the future, as the domestic credit bond market infrastructure is further improved, the variety of domestic bonds held by foreign capital will be further enriched and the scale will continue to expand.

Data released by the State Administration of Foreign Exchange also showed that as my country's foreign trade continued to recover and improve, trade in goods maintained a high surplus, and net cross-border capital inflows in the first half of the year were at a historical high. Trade in services is also recovering in an orderly manner. Among them, cross-border travel expenditures rebounded while travel income also increased significantly, reflecting the positive results of my country's optimization of services for foreigners coming to China. Supported by these factors, despite the recent impact of seasonal factors such as dividends and dividends, my country's cross-border capital flows remain reasonable and orderly overall.

"In the future, my country's cross-border capital flows have the conditions and foundation to continue to be basically stable." A relevant person in charge of the State Administration of Foreign Exchange said that from an internal perspective, my country's economic operation is generally stable and has made progress. In the first half of the year, the gross domestic product (GDP) increased by 5% year-on-year. As the effects of the macro-combination policy continue to emerge, the stable and long-term positive development trend of the economy will be more solid. At the same time, my country's foreign exchange market has strong resilience, the exchange rate risk management capabilities of enterprises have been improved, and the proportion of cross-border use of RMB has steadily increased, which will help foreign exchange transactions remain rational and orderly. From an external perspective, the global economic recovery will continue to boost external demand, which is conducive to maintaining the growth of my country's foreign trade; developed economies such as Europe and the United States have gradually started to cut interest rates, and the spillover effects on global financial markets are expected to ease. (Economic Daily reporter Yao Jin)