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China’s FX Regulator Says Foreign Investors Keen To Hold Yuan Assets

Pan Gongsheng, the director of China's State Administration of Foreign Exchange recently told a financial forum in Shanghai that foreign investors were now more willing to hold their yuan and yuan-denominated assets. This is a sign of increasing confidence in the Chinese economy and suggests that there is a bright future ahead.

According to Gongsheng, the government expects the current exchange rate for the yuan to remain stable. In hopes of keeping it at that level, China will be trying its best to improve the currency flexibility of the yuan.

In a statement, Gongsheng said

The yuan midpoint fixing will be more rule-based, transparent and market-oriented, and market forces will be allowed to play a bigger role in deciding the yuan's exchange rate.

Foreign investors are already flocking to invest in the East Asian giant, as data shows that there is an increase in the number of foreigners who are buying Chinese bonds. The amount of Chinese bonds held by foreign investing institutions right now is at an all-time high, showing the confidence that foreign investors have in the country's prospects.

Currently, offshore financial institutions are holding bonds worth 1.44 trillion yuan. This is the equivalent of $225.2 billion and the investment into China still shows signs growing more.

Foreign Investors Confident Of Chinese Economy

The outlook for China is looking pretty bright at the moment but there are still some concerns. The reports for May 2018 showed that most sectors have recorded a weaker performance. While many sectors like retail sales and industrial output showed signs of growth, they were lower than what was expected. This is an indication that while the Chinese economy is good, things are finally slowing down as the reduction of risky lending practices has reduced the amount of capital available to many companies.

The Chinese central bank decided not to follow the US Federal Reserve's lead in raising market rates – which by itself has caused quite a few rumblings in the forex market. China has decided for now to keep their rates at current levels.

Despite all of this, Gongsheng is still confident in the Chinese market and the yuan. He says that there will be more ways for capital to move across the Chinese border as well as ways for Chinese investors to join the offshore yuan market. He is also encouraging local companies to start hedging as a way to fight market volatility.

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