Investment in policy bank bonds rises

Overseas investors will go further down the credit structure to look at the opportunities in Chinese corporate bonds, said Li.

"We have seen solid numbers for that trend, with rapid progress made," he said.

The overall sentiment of overseas investors in the Chinese bond market outlook remains high. According to China Central Depository and Clearing, overseas institutions held nearly 1.7 trillion yuan worth of Chinese bonds via CCDC's trust accounts by the end of July, up 3.2 percent from a month earlier. It is the eighth consecutive month that overseas institutions have increased their investment in Chinese bonds.

Also, another 96 overseas institutions joined the bond connect program in July, with the total number of such overseas institutions exceeding 1,100. The total trading volume of the bond connect mechanism reached 201 billion yuan in July, hitting another record high. The bond connect program between the Chinese mainland and Hong Kong markets was launched in early June 2017.

Statistics from the China Foreign Exchange Trade System show that a total of 2,085 overseas institutions had entered the Chinese interbank bond market by the end of July, with their total investment rising 18 percent year-on-year to 435.3 billion yuan.

Sun Guofeng, head of the monetary policy department of the People's Bank of China, said that given the relaxed currency policies in most developing economies, only China keeps its currency stable. On top of that, most renminbi assets are undervalued so China will hopefully become the hot spot for global capital.

David Beale, Asia-Pacific co-head of CIB's Institutional Client Group at Deutsche Bank, said that 27 percent of the bonds in the world now provide negative yields. As most overseas economies have cut interest rates, renminbi bonds will continue to be lucrative for overseas investors, he said.

While concerns were expressed about the possible impact of the fluctuations in the renminbi exchange rate, Beale said that overseas investors will only be affected by disordered and acute ups and downs in the exchange rate.

"The renminbi exchange rate went through some dramatic swings in 2015, which resulted in the conservative attitude of overseas investors regarding the Chinese market. But the situation is totally different now. The renminbi exchange rate has been undergoing mild and orderly fluctuations," he said.

"Overseas investors keep a close eye on the Chinese policies. Given the number of investor guidelines and new policies, they have much confidence and high expectations in policy transparency. They will attach more importance to the Chinese market," he added.