Investment in policy bank bonds rises

Foreign capital inflows reach $14.52 billion in first seven months of year, hitting a record high

Overseas investment in Chinese policy bank bonds has been rising sharply as institutional investors recognize their liquidity and investment value, experts said.

A total of 103.5 billion yuan ($14.52 billion) of foreign capital has flowed into the Chinese policy bank bonds market during the first seven months of the year, hitting a record high both in size and growth rate, according to Bloomberg's calculations.

The three main policy banks - China Development Bank, the Agricultural Development Bank of China, and the Export-Import Bank of China - were established during the 1994 banking reform to assume responsibility for financing economic and trade development and State-invested projects.

Over the past 12 months ending July 31, Bloomberg's statistics show that overseas institutions had increased their investment in bonds issued by China Development Bank by 62 percent. During the same period, their investment in Chinese government bonds went up 19 percent.

Li Bing, head of Bloomberg China, said that overseas investors' move toward policy bank bonds in China illustrates their greater acceptance of the Chinese bond market, recognizing a significant step forward in terms of risk control.

The amount of bonds issued by Chinese policy banks is quite large and keeps a steady pace, so they promise good liquidity, explained Li. Overseas investors have recognized the liquidity and value of such bonds given the continued capital inflow over the past few months, he said.

More important, the increasingly vibrant Chinese policy bank bond market has shown that overseas investors are changing their investment strategies in China, said Li. They chose to wait and see in the early days and most of them started to test the waters by investing in government bonds. But now their participation in the policy bank market indicates that their probe of the market has been successful, he said.