Foreign money is still betting on China, regardless of a slowdown in its economic growth, or tense trade negotiations with the United States.
As global bond yields remain low, investors clamored for China’s biggest ever international sovereign bond sale on Tuesday, with orders for the $6 billion raise reaching 3.6 times the issuance, according to China’s Ministry of Finance.
“We still have a lot of investors who have confidence in investing in China,” Frank Zheng, head of international fixed income at China Asset Management Company, said in a phone interview Thursday, according to a CNBC translation of his Mandarin-language remarks.
The issuance yields for the four tranches of bonds ranged from 1.929% for a three-year term to 2.881% for a 20-year term, the finance ministry said.
“The tight spreads achieved provides a very positive signal on China’s fundamentals from an international investor’s perspective,” Rong Ren Goh, portfolio manager in Eastspring Investments’ fixed income team, said in an email. “Beyond financial considerations, this issuance also reflects China’s ongoing efforts to integrate itself into global financial markets, and delivers a strong message that it welcomes foreign investors.”
The Chinese government has picked up the pace of a long-touted opening of the local financial industry to foreign investors, peeling back limits on foreign stakes and quotas for foreign securities investment. The moves come as Beijing is under pressure from the U.S. to improve foreign access to Chinese markets, and needs to attract more capital into the local market.
Zhao Bowen, research director at Beijing-based Blue Stone Asset Management, pointed out that in the third quarter, China’s non-reserve financial assets broke a trend of running a surplus and instead posted a significant deficit that was greater than the current account surplus. Zhao also noted how trade tensions with the U.S. pushed the yuan weaker, giving Beijing more incentive to attract foreign capital.
While the majority of China’s debt (which has soared to a more-than-300% debt-to-GDP ratio) is denominated in local currency, Beijing needs U.S. dollars and other major foreign currencies for doing business with other countries, as the internationalization of the yuan makes slow progress.
