China hot money inflows maintain pace, but risks ahead as US edges towards rate increase
- Foreign holdings of interbank bonds reached 4.07 trillion yuan (US$640 billion) at the end of January
- But a test is looming as the US Federal Reserve is poised to respond to record inflation with more aggressive rate increases, while China is easing its monetary stance
Foreign investors continued to pour money into China’s bond market last month, but analysts have warned that challenges will start to mount due to Beijing’s policy divergence with the United States.
Inflows have provided a sweet spot for policymakers as foreign holdings of interbank bonds reached 4.07 trillion yuan (US$640 billion) at the end of January, which represents around 3.5 per cent of the market total, according to data released by the People’s Bank of China (PBOC) on Monday.
The net increase was 70 billion yuan last month, down from 78.7 billion yuan in December and 80 billion yuan in November.
The new inflows – which amounted to US$166.6 billion last year and US$186.1 billion in 2020 – have been widely viewed as a signal of China’s economic fundamentals and financial depth.
China hasn’t seen obvious capital outflows