China Economic Information Service:

The tightening of monetary policy in major developed economies has been accelerating, significantly impacting global cross-border investment and financing. Against this background, what's your opinion on the changes and trends of the foreign holdings of China's bonds? Thank you.

Wang Chunying:

We have touched upon several issues related to your question, but I'll give more explanation. Recently, we have seen major changes in the international financial market. The exchange rate and interest rates of the U.S. dollar have risen rapidly, coupled with capital outflows from emerging economies. From a global perspective, we have made observation and analysis on a longer-term basis, and we have several ideas to share with you.

First, China's bond market has gradually become an important global cross-border investment destination. In recent years, China's bond market has been opening steadily, and cross-border transactions have become more convenient. China's bonds have been included in the three major international indexes, and the impact and attractiveness of the domestic bond market have improved dramatically. Under this background, at the end of 2021, China attracted nearly $820 billion in cross-border bond investment, accounting for about one third of emerging economies' total external bond investment. It includes the bonds purchased by overseas investors within China and the bonds that domestic entities issued overseas. Both of them have significantly increased or remained active. This is for the stock of the bond. In terms of flow, we expanded the opening up of the securities market in 2017. From 2017 to 2021, the amount of cross-border bond investment funds introduced by China ranked the fourth in the world, following the U.S., Britain, and Japan. After years of development, China has become one of the major destinations for global cross-border bond investment. The recent market fluctuations have not changed this.

Second, from a global perspective, China has been attracting bond investment on a solid footing. The bond market fluctuation is normal. It is normal to have fluctuations in bond investments in countries, whether in developed or emerging economies. For example, there are often fluctuations in the U.S. Treasury market, which is the world's largest treasury market, when some countries reduce their holdings. We have also observed the fluctuations of bond investments in major countries. By comparison, we found that China's fluctuation is much lower than that of many developed and emerging economies. Judging from the composition of foreign investors and the scale of their bonds, institutions like central banks have always held more than half of China's bonds. Meanwhile, a large part of the rest has been the allocation funds tracking international indexes, which have also been relatively stable.

Third, further opening up the bond market will help improve the foreign exchange market's resilience. In recent years, there has been a steady inflow of cross-border capital, such as trade in goods and direct investment. Such capital has contributed to basic surpluses. The opening up of China's bond market has also diversified the participants and capital resources of the foreign exchange market, which helps to improve China's foreign exchange market and strengthen its capacity to withstand various influences.

We have shared some of our analyses and observations in response to your question. In general, China's bonds not only maintained investment diversification, but also serve the need for capital allocation and are supported by the fundamentals. The total size of China's bond market is $21 trillion, and foreign capital accounts for only about 3% of China's bond market. That means there will be more foreign investment in China's bond market. In the long run, we are confident that foreign investors will steadily increase their holdings of RMB bonds. Thank you.