• Chinese investors are parking excess liquidity in safe areas of the financial system, Bloomberg reported. 
  • Instead of letting yuan flow to the real economy, the money is ending up in bank bonds and corporate debt.
  • Chinese funds are also heading for the US dollar, helped by higher rates.

Chinese investors are parking excess liquidity in safe bets within the financial system, including the US dollar, instead of letting it flow to the real economy, according to Bloomberg.

The country's top lenders and funds are putting cash in onshore policy bank bonds and high-grade corporate debt, per the report.

Chinese cash is also heading for the US dollar, which is already hovering near 20-year highs, helped by higher rates.

The cost of yuan funding has fallen for three months against the dollar in the offshore forward market, reflecting higher demand for the dollar, according to Bloomberg. 

Given the Federal Reserve's much more aggressive rate hikes compared to China's accommodative policy, the dollar poses a more attractive option for investors compared to the yuan. 

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