Since last year, many have been pessimistic about China, claiming that foreign capital is fleeing China on a large scale. However, the central bank has recently come forward with the latest data to debunk these claims.

The data indicates that since the fourth quarter of 2023, overseas institutions have begun to significantly increase their holdings of bonds within China. What is the motive behind this? Have the China debt crisis concerns they mentioned disappeared?

On April 18th, during the press conference on the financial operations and foreign exchange income and expenditure situation in the first quarter of 2024, the State Administration of Foreign Exchange disclosed a very important piece of data.

Starting from the fourth quarter of last year, overseas institutions have begun to massively increase their holdings of bonds within China.

For the entire year of 2023, the net increase was only $23 billion, while the net increase in the first quarter of this year has already reached $41.6 billion.

As of the end of March this year, 1,129 overseas institutions from more than 70 countries and regions have entered the Chinese bond market.

Currently, the holdings of foreign capital have exceeded $570 billion, accounting for about 2.6% of the total domestic bond custody volume.

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$570 billion, which is roughly 4 trillion yuan, is a significant amount.

Why have overseas institutions suddenly increased their investment in Chinese bonds? What kind of bonds have they invested in?

The State Administration of Foreign Exchange believes that, firstly, there is macroeconomic support, secondly, the investment value is guaranteed, and thirdly, there is a global allocation demand.The Chinese yuan exchange rate remains relatively stable, and Chinese yuan-denominated assets have a comparatively independent asset return performance on a global scale, which helps foreign investors to diversify risks.

The State Administration of Foreign Exchange introduced that foreign central banks and banks and other financial institutions are orderly increasing their holdings of bonds within China, and they mostly invest in medium and long-term bonds such as government bonds and policy financial bonds.

The yield of these long-term bonds is relatively low, but they have good credit and low risk, and they have a very obvious risk-avoiding attribute.

Is this a sign that foreign capital is coming to China for risk avoidance? This possibility is entirely possible.

In the past two years, the global economic recovery has faced challenges, and many people have forgotten that among the larger economies globally, China's economic growth rate is relatively fast.

At the same time, China's economic foundation is solid, its operation is stable, and its risk control is effective, making it one of the safest and most stable economies globally. This is very rare in today's turbulent global economic environment.

The US dollar is raising interest rates, and the global economic growth is facing challenges; there are not many safe places for capital investment left.

Recently, the yen has been massively shorted, and the main Asian currencies have encountered a wave of devaluation, while the Chinese yuan remains as solid as a rock.

What's more important is that these bonds in China are high-quality assets.

What is behind the bonds? Many people have misunderstood, thinking that bonds are all junk, which is influenced by the toxic influence of American junk bonds, thinking that the world is full of junk bonds.Chinese bonds are different from the vast amount of junk bonds derived from American finance; our bond issuance is relatively rigorous, and only high-quality assets are usually allowed to issue bonds.

The main buyers of bonds are still the ordinary people of China; we cannot deceive our own people.

Therefore, Chinese bonds correspond to a large number of our high-quality assets, including many infrastructure and urban livelihood projects.

In summary, it is very normal for foreign institutions to be optimistic about Chinese bonds.

However, a sudden large-scale increase in Chinese bonds by foreign institutions is also an event that we need to be vigilant about.

Many of us are not vigilant enough about the tactics of American financial capital, thinking that the so-called harvesting is all conspiracy theories.

In fact, as the only financial superpower in the world, the level of development of the American financial industry, the richness of its means, and the ruthlessness of its actions are beyond our imagination.

At the same time, our debt itself still carries certain risks, leaving opportunities for them to take action.

Since last year, many people have said that the debt crisis is a bigger threat than the real estate bubble. Although we have taken active measures to guard against risks, the scale of debt remains large, and the risks still exist.

At this time, if foreign institutions conspiratorially target the bond market, it is very likely to cause significant turmoil.There is also a significant risk factor at play here: foreign capital may engage in underhanded tactics. Often, this begins with rating agencies downgrading their ratings, followed by capital short-selling, and then a large-scale media campaign to exaggerate the crisis.

China, being a populous country, has many investors who lack rationality, with a multitude of people blindly following trends. The slightest disturbance can potentially cause significant waves, making it difficult to control the direction of public opinion.

Of course, we must not be overly anxious, nor should we avoid doing something for fear of its potential negative consequences. Instead, we should strive to create a high-quality investment environment, expand the openness of China's bond market, and make it more convenient for foreign investors to participate.

As the U.S. dollar interest rate hike reaches its critical stage, global capital markets are on edge, with major powers engaging in subtle contests and certain regions facing imminent dangers.

In such an environment, it is not ruled out that some foreign capital forces may take desperate measures. Therefore, it is always wise to stay vigilant and take preventive measures.