China just closed a $ 6 billion U.S. dollar (USD) bond offering directly to U.S. investors, attracting more than $ 27 billion in orders, thanks to the bond’s relatively higher yield than bonds comparable American states and their rarity value. International investors have also been drawn to China’s renminbi (RMB)-denominated bond markets, which are expected to increase their holdings to 3 trillion yuan ($ 448 billion) by the end of this year, from 2 trillion yuan ( $ 298 billion) at the end of 2019. —A 50% increase, which is pretty impressive during the pandemic crisis.
The attraction of China’s domestic bond markets reflects a 2.5 percentage point yield advantage of Chinese government bonds over US Treasuries and a strengthening of the RMB against the USD so far this year . The substantial inflows have been facilitated by China’s easing measures, including the launch of the Hong Kong-based Bond Connect program, which allows foreign investors to buy domestic bonds without having to open brokerage accounts in China. The recent inclusion of Chinese RMB bonds in global bond indices, including those provided by JP Morgan, FTSE Russell and Bloomberg, is also supporting the entries.
China has also authorized several US securities and investment management companies to operate wholly owned subsidiaries in China. All of these openness measures are consistent with a significant demand from the United States, highlighted in the Phase 1 trade agreement, for China to open its markets to the United States and other players.
Overall, China’s openness measures to promote further integration of its financial markets with world markets contrast sharply with the decoupling rhetoric coming from Washington. This lack of cohesion in US policy towards China must be corrected by the next administration, the one that wins in November.
At the intersection of economics, finance and foreign policy, the GeoEconomics Center is a translation center whose purpose is to help shape a better global economic future.
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