On October 22, the State Council Information Office held a press conference to discuss the foreign exchange data for the first three quarters of 2024. Li Hongyan, Deputy Director of the State Administration of Foreign Exchange, shared insights on the continued and steady progress of China’s financial market opening to foreign investment.
Li highlighted that there has been a positive trend in foreign asset allocation towards RMB investments. Since the beginning of the year, the comprehensive yield on RMB-denominated bonds has remained robust, attracting increased interest from overseas investors.
As of now, foreign holdings of RMB bonds in China exceed $640 billion, reaching historical highs. Li noted that the primary holders of these assets are conservative investors, such as foreign central banks and commercial banks, with a significant portion invested in medium- to long-term bonds like government and policy financial bonds, indicating a stable investment environment.
Furthermore, driven by the recent rally in China’s stock market, foreign net purchases of domestic stocks have also increased since late September, enhancing the willingness of foreign investors to allocate RMB assets. Currently, foreign investment in China’s capital markets is still in its early stages, with foreign holdings in the stock and bond markets comprising only about 3% to 4%. Given various favorable factors, there is still considerable room for growth.
Li pointed out three key reasons supporting this positive outlook. First, China’s economic fundamentals remain stable and are showing signs of improvement, creating a favorable macroeconomic environment. The country has been methodically advancing high-quality economic development, and recent incremental policies are expected to further consolidate this positive trend.
Second, China’s commitment to high-level openness has fostered a supportive policy environment. The steady progress of financial market opening has provided foreign investors with diverse investment channels, including programs like the Shanghai and Shenzhen Stock Connect, Bond Connect, and the CIBM (China Interbank Bond Market). Recent policy initiatives from the 20th Party Congress aim to bolster financial openness, which is anticipated to enhance the appeal of China’s capital markets to foreign investors.
Third, RMB assets offer excellent diversification benefits, contributing to attractive investment value. China has developed a comprehensive and deep financial market system, with the bond and stock markets ranking second globally in scale. The stability of the RMB and its diverse asset base provide independent performance that aids in global investors’ asset diversification and risk management. Moreover, the share of RMB in cross-border transactions is gradually increasing, thereby enhancing its international influence and making it an important choice for diversification in asset allocation.
Li emphasized that, overall, foreign investment in RMB assets contributes to a more diverse market participant base and improved market liquidity, fostering a more vibrant and internationalized domestic capital market. The State Administration of Foreign Exchange will continually work towards enhancing investment convenience, creating a favorable investment environment, promoting high-level financial openness, and actively supporting foreign investors in participating in the domestic capital market.
