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Foreign Investment in Chinese Bonds Surges Despite Leap in Defaults Last Year

Foreign investment in Chinese bonds posted robust growth in 2018 despite a surge in defaults, especially amongst corporate debtors.

Data from Wind indicates that China saw 149 bond defaults worth 137.577 billion yuan during the period from the start of 2018 to 13 December, as compared to just 50 bond defaults in 2017 worth 39.324 billion yuan, for YoY increases of nearly 200% and 250% respectively.

While this trend attracted considerable media attention last year, the overall default rate of the Chinese bond market remains comparatively low by international standards, with the Chinese corporate credit bond default rate standing at just 0.79% as of the end of 2018.

Foreign institutional investors were certainly not deterred by the sharp surge in bond defaults last year, with their holdings of renminbi-denominated bonds standing at 1.73 trillion yuan as of the end of 2018 for an annual growth rate of 51% according to data from Money Week.

Government bonds account for 63% of the renminbi bonds held by foreign investors, while foreign investors comprise around 8.04% of China’s government bond market.

Analysts impute the popularity of Chinese government bonds to the higher returns they provide compared to developed economies, as well as expect a gradual increase in passive capital inflows as Beijing open up China’s bond market.

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