NEW YORK, July 20 (Reuters) - Foreign flows to China’s local currency government bond market could balloon to $400 billion annually, an analysis from the Institute of International Finance showed on Tuesday. Central banks were behind 60% of the flows to local currency Chinese government bonds in the first quarter of 2021 as allocation of reserves to Chinese bonds continued to increase, the data showed. While flows to Chinese bonds have continued to rise as the country opens up to foreign investors and its bonds are included in major indexes, “they remain small relative to China’s GDP and share of global trade,” said the IIF report. It estimated that if global yuan reserves rose from 1.8% to 3% of China’s gross domestic product over the next 10 years, “annual flows to the local bond market would consistently exceed $400 billion.” Separate data from the IIF showed that for last year a net $47.3 billion from foreign portfolios made its way into Chinese stocks, while $198.3 billion was attracted by a variety of debt instruments. In the first quarter of this year, net foreign inflows to Chinese stocks and debt totaled $83.1 billion. “There is obvious scope for reserves in yuan to increase but we work with conservative projections given persistent diplomatic tensions,” the IIF said, citing a “tense and complex” relationship between Beijing and Washington. Reporting by Rodrigo Campos; editing by Richard Pullin Our Standards: The Thomson Reuters Trust Principles.