In a recent press conference held by the State Administration of Foreign Exchange (SAFE) in China, officials highlighted the robust activity in the country’s foreign exchange market during the first three quarters of the year. The domestic RMB foreign exchange market recorded a total trading volume of $30.27 trillion, reflecting a year-on-year growth of 10.1%.
As the Chinese stock market experiences upward momentum, foreign investment has surged. The SAFE reported that since late September, there has been a significant increase in foreign net purchases of domestic stocks. The willingness of foreign investors to allocate assets in RMB has also strengthened. However, it is important to note that the scale and proportion of RMB asset holdings among foreign investors are still relatively low, accounting for around 3% to 4% of the domestic equity and bond markets. This suggests considerable potential for future growth.
During the press conference, SAFE officials emphasized the positive trend in foreign investment in RMB assets. They indicated that there is additional room for further allocation, bolstered by the attractive overall yields of RMB-denominated bonds. To date, foreign ownership of domestic RMB bonds has surpassed $640 billion, reaching historic highs.
Amid the recent rally in the A-share market, there has been keen interest in the allocation of foreign capital. SAFE noted that following stock market gains, foreign net purchases of domestic stocks have increased. Even with this encouraging trend, the overall investment from overseas investors in China’s capital markets remains in the nascent stages, with the proportions of RMB asset holdings still modest.
Deputy Director Li Hongyan of SAFE reported that foreign investment in domestic bonds has continued to show stable inflows, with net increases exceeding $80 billion over the first three quarters. Recently, the situation regarding foreign investment in domestic stocks has also noticeably improved.
Li outlined several key features regarding external balance during this period: firstly, there has been a recovery of net inflows of cross-border capital; secondly, settlement and sales of foreign exchange have tended toward balance; thirdly, there has been a steady recovery in foreign exchange settlement; the settlement rate for foreign exchange income was 62.1%, while the purchasing rate was 68.9%. Additionally, the foreign exchange market remains active, and the scale of foreign exchange reserves is stable.
As of the end of September, China’s foreign exchange reserves stood at $3.3 trillion, reflecting an increase of $78.4 billion since the end of 2023.
