Foreign Institutions Have Reduced Chinese Bonds Holdings By RMB 610B In 2022

On January 18, local time, the Shanghai Headquarters of the People’s Bank of China released data in relation to foreign institutions’ investment in the interbank bond market. The data showed that the bond holdings of foreign institutions in 2022 have decreased by about 610 billion yuan (equivalent to about USD97 billion) from the year before, while the percentage of total custody volume in the interbank market decreased from 3.5% to 2.7%, a drop of 0.8%.

It was reported that as of the end of December 2022, foreign institutions held 3.39 trillion yuan (equivalent to USD500 billion) of bonds in the inter-bank market, compared to 4 trillion yuan (equivalent to USD590 billion) the year before. Specifically, treasury bonds and policy financial bonds held have decreased by 160 billion yuan (equivalent to USD23.62 billion) and 340 billion yuan (equivalent to USD50.19 billion) respectively.

According to data from the CCP’s Bond Information Network, after the outbreak of the epidemic in 2020, foreign institutions initially chose to increase their holdings of Chinese government bonds, which means that these institutions still had illusions about the CCP in the early stages of the covid pandemic. However, since January 2022, foreign institutions have reduced Chinese bond holdings for 11 consecutive months. By the end of 2022, the CCP’s lifting covid restrictions did little to counter the impacts of negative population growth, and massive government and real estate debts.

Some market professionals pointed out that the extreme Zero Covid Policy in 2022 had prompted foreign institutions to reduce their holdings of government bonds and policy financial bonds in large quantities, thus increasing the credit risk of the CCP. In particular, the default risk of 60 trillion yuan (equivalent to USD8.89 trillion) in local government debts is expected to rise rapidly in 2023.