Against the backdrop of global geopolitical fluctuations, China's better-than-expected first-quarter economic report has further strengthened global capital's motivation to increase allocations to Chinese assets. Morgan Stanley's Chief China Economist Xing Ziqiang described this trend as "an inevitable outcome of global diversification." Speaking at a recent interbank market event titled "Global Financial Institutions Entering China's Financial Market," he stated that under the "East stable, West volatile" macroeconomic pattern, global investors are gradually reducing their reliance on single-dollar assets, with Chinese assets expected to continue receiving capital inflows during this reallocation process.
Multiple economists from foreign financial institutions have also pointed out that Chinese assets are transitioning from being "optional" to "essential." This shift stems both from rising external uncertainties and China's economic structural evolution coupled with institutional opening-up. "More importantly, allocating Chinese assets is shifting from passive to active," said Shu Chang, Bloomberg's Chief Economist for Asia Pacific.
Initial signs of this trend are emerging in capital flows. By the end of 2025, overseas institutions' holdings of RMB financial assets in China exceeded 10 trillion yuan, while China's bond market size approached 200 trillion yuan, ranking second globally. Simultaneously, foreign research activities and holdings show signs of recovery. In the global asset reallocation cycle, the Chinese market is gradually moving from marginal allocation to core option status.
Chinese Assets Incorporated Into Core Asset Framework The global asset pricing system has been undergoing phased restructuring recently. Amid Middle East tensions, global risk assets generally declined, but unlike previous patterns, traditional "safe-haven assets" failed to demonstrate stable hedging functions: gold prices experienced significant pullbacks exceeding 10%, U.S. Treasury yields remained volatile at high levels with 10-year yields consistently above 4%, European economic growth momentum weakened, and emerging markets faced pressure from combined dollar cycles and geopolitical risks.
This indicates that the global allocation framework anchored around dollar assets is showing signs of loosening. The previous allocation logic relying on single "safe assets" cannot effectively hedge against current multiple uncertainties, prompting global investors to reassess asset distribution and risk sources. Against this backdrop, Chinese assets are gradually transitioning from "optional" to "essential."
"Becoming an option itself was hard-won," said Ding Shuang, Managing Director and Chief Economist for Greater China and North Asia at Standard Chartered Bank, noting that international investors once considered Chinese assets "uninvestable" several years ago, but this perception has significantly changed recently. He views the renewed attention to Chinese assets as primarily driven by external environmental changes. Rising geopolitical risks and global economic uncertainties have led some investors to seek "safe harbors," with RMB assets gradually entering this perspective.
Concurrently, China's sustained investments in technology and industrial sectors are yielding results, particularly in artificial intelligence and new energy, creating new return expectations. Capital flows and market data provide some validation of this trend. Northbound capital recorded net inflows exceeding 250 billion yuan throughout 2025; by year-end, overseas institutions and individuals held over 10 trillion yuan in RMB financial assets in China. During the same period, China's bond market size approached 200 trillion yuan, ranking second globally.
In equity markets, foreign participation is also recovering. Since early 2026, foreign institutions have researched over 400 A-share listed companies, with total research visits reaching thousands. Regarding holding structures, by end-2025, more than 120 A-share companies had QFIIs among their top ten shareholders, over 80% of which received increased holdings or new heavyweight positions in the fourth quarter.
Balance of payments data provides additional confirmation. SAFE figures show China's external net assets exceeded $4 trillion by end-2025, up approximately 28% year-on-year, with foreign investment in domestic stocks showing overall net growth. Shu Chang noted that as China's market size and trading mechanisms continuously improve, international investors are no longer treating China merely as regional allocation supplement but incorporating it into core global portfolio asset frameworks.
Growth Momentum Shift Underpins Asset Revaluation The fundamental basis supporting Chinese asset revaluation lies in continuous economic structural evolution, ultimately returning to macroeconomic resilience and quality. Latest data indicates stable growth support remains intact. Preliminary calculations show China's first-quarter 2026 GDP reached 33.4193 trillion yuan, growing 5% year-on-year at constant prices, accelerating 0.5 percentage points from the previous quarter, maintaining leading position among major global economies, with incremental size equivalent to a medium-sized economy.
Reviewing 2025, full-year GDP grew approximately 5%, demonstrating strong stability. More notably, growth structure is transforming. The previous property-led growth model is gradually fading, while high-end manufacturing, information technology, and new energy sectors maintain rapid expansion as new supporting forces. Bloomberg calculations indicate that around 2026, high-tech industries' GDP contribution may surpass real estate for the first time, becoming new key growth source.
"What supports asset performance is economic structural change rather than single cyclical fluctuations," Shu Chang believes, asserting that growth momentum undergoing fundamental transformation truly determines asset pricing. She views technological innovation and green transition as constituting new underlying asset logic, providing more sustainable profit sources for Chinese markets.
This transition demonstrates policy and growth paradigm continuity. Ding Shuang noted China's economy maintained around 5% medium-speed growth in recent years with relatively stable policy orientation emphasizing cross-cycle adjustment over strong stimulus, while industrial structure upgrades from traditional sectors to high-end manufacturing and services, where "high-quality development corresponds to high-quality asset supply."
Beyond fundamentals, exchange rate factors enhance asset attractiveness. Over the past year, RMB generally appreciated, with both onshore and offshore rates breaking through 6.81 against dollar, showing significant cumulative appreciation. Entering 2026, RMB continues exhibiting "stable with appreciation and two-way fluctuations," successively breaking through 6.87, 6.85, and 6.83 levels, becoming important variable in global forex markets.
However, key constraints remain in transitioning from "structural improvement" to "sustained asset return enhancement." Xing Ziqiang directly stated that low RMB asset returns reflect insufficient domestic demand and low inflation environment constraints. Despite China's "vast potential" in technological innovation and industrial upgrading, without consumption-side support, corporate profits cannot comprehensively improve, nor can asset returns significantly increase. Thus, the key issue gradually shifts from "supply-side upgrade" to "demand-side recovery."
Xing believes enhancing consumption capacity requires addressing income distribution structure, particularly through social security and transfer payment redistribution mechanisms to reduce precautionary savings motives among middle-low income groups, thereby releasing consumption potential. This constraint also manifests in capital allocation. Ding Shuang mentioned foreign allocation to Chinese bonds remains constrained by yield levels, with some overseas investors showing net reductions past year. But he expects long-term return centers to potentially rise as price indicators gradually recover, corporate profits improve, and RMB potentially appreciates.
Institutional Opening Enhances Market Appeal Beyond asset attractiveness, institutional environment evolution represents another key variable. Recent years witnessed China's financial market opening progressing from initial "channel-based opening" to "institutional opening" stage. Continuous improvements in Bond Connect, Swap Connect, and bond repo mechanisms enable overseas investors not only market access but also more complete trading and risk management capabilities.
Shu Chang noted these measures provide overseas investors market access channels while simultaneously improving risk management tools and liquidity support. "Bond Connect offers channels for overseas investor participation in China's bond market, Swap Connect provides risk management tools, and repo mechanisms enhance capital usage efficiency—this constitutes a gradually improving system," she explained.
Policymakers have continuously promoted market rule alignment with international standards, including recognizing international repo agreement systems, allowing foreign institutions' participation in domestic repo transactions, and optimizing cross-border clearing mechanisms. However, foreign institutions still have practical demands. Ding Shuang identified three key concerns: first, insufficient risk hedging tools, particularly strong expectations for treasury bond futures and interest rate options; second, room for improving RMB bonds' collateral application scope; third, need for clearer and institutionalized tax policies for accurate long-term return calculations.
Shu Chang suggested future improvements could focus on optimizing connectivity mechanism coordination and process efficiency, enriching risk management tools, attracting more international market makers and long-term capital participation, and promoting cross-market rule alignment and mutual recognition to enhance Chinese bonds' global accessibility and liquidity.
From longer-term perspective, multiple economists consider capital account opening remains crucial. Ding Shuang stated China possesses strong balance of payments foundation, particularly persistent current account surpluses, providing space for gradual capital account opening. Expected future progress along prudent, gradual path would create conditions for normalized overseas capital allocation. Xing Ziqiang also emphasized that while financial opening and market reform are important, "what ultimately determines large-scale capital inflow remains fundamentals." Although foreign confidence in Chinese markets has significantly improved compared to two years ago, profitability and demand recovery still require time for validation.
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