$100 billion annual inflow in Chinese bond market expected

Up to $100 billion of overseas capital is expected to flow into the Chinese mainland annually after the government’s planned bond connect mechanism is launched, domestic media reported on Friday.

This would represent a significant boost from the current rate of investment, as overseas investors only held about 420 billion yuan ($60.9 billion) worth of domestic bonds at the end of March, up 2.3 billion yuan month-on-month after a two-month decline, ifeng.com reported on April 6.

The investment came from more than 300 overseas institutions, according to the People’s Bank of China on Tuesday.

The Chinese government has stepped up efforts to open up its bond market in recent years. A bond link mechanism between the Chinese mainland and Hong Kong will also be established this year, though details of the project are still yet to be disclosed.

The bond mechanism, which will promote for the further opening-up of the domestic bond market, has attracted widespread attention among overseas investors, according to a report from stcn.com on Friday.

In February 2016, the government announced that a wide range of foreign institutional investors would be given quota-free access to the Chinese Interbank Bond Market.

However, as things currently stand overseas investors are still adopting a wait-and-see attitude toward putting their money in the Chinese bond market, due to factors such as the weak yuan, experts told the Global Times earlier this week.

According to a straitstimes.com report in March, overseas holdings dropped to just 1.3 percent of the $9 trillion Chinese bond market by the end of 2016, down from 1.4 percent in February 2016.