Foreign purchases of onshore Chinese bonds more than doubled in the May suggesting the world’s second-largest economy with its relatively high yields is becoming a magnet for hot money.
According to figures released by the State Administration of Foreign Exchange on Friday, net purchases of bonds by foreign funds rose by 104 per cent from April to US$19.4 billion.
Meanwhile, Chinese banks reported a 61 per cent increase in foreign exchange trading to US$23.8 billion, the agency said, suggesting a growing willingness among Chinese individuals and companies to convert US dollars into yuan.
The figures confirmed the trend of strong capital inflows seen in data from other institutions. The latest figures from the Shanghai Clearing House, which records onshore bond positions, show that foreign ownership of China’s onshore bonds has risen to a record high.

The outstanding positions of onshore Chinese bonds owned by non-mainland investors amounted to 2.43 trillion yuan (US$343.4 billion) at the end of May, or 2.6 per cent of the total – its highest proportion ever.

In May alone, foreign investors increased their holdings of Chinese bonds by 114.6 billion yuan, marking the largest rise for 18 months, the clearing house said.

The strong inflows into Chinese onshore securities may be a result of global monetary easing, led by the US Federal Reserve, amid the coronavirus outbreak and a search for yields in a world of ultra-low or even negative interest rates, analysts said.
“Overseas investors are showing great interest in the Chinese bond market because its sovereign treasury bonds have relatively strong returns,” Robin Xing, Morgan Stanley’s chief China economist, said on Wednesday.
China could expect its annual portfolio inflows to reach US$100 billion, he said.