China | The surge in capital flows may be just beginning

China’s capital in- and outflows have risen strongly since early 2020, following the easing of policy restrictions both ways. However, China’s integration into the global financial system has only just begun, and the potential for capital flows to expand further is large, especially for portfolio flows.

What you will learn about:

  • Rising capital inflows in China have largely been in the form of foreign direct investment (FDI) and portfolio flows, boosted by global investors' rising interests on Chinese assets. 
  • The strong inflows, in turn, have led policymakers to ease their stance
    regarding capital outflows. In this context, capital outflows surged in 2020. The sizeable net outflows are the reason China's reserves rose only modestly in 2020.
  • China’s cross-border financial holdings as a share of GDP are low compared to developed economies, underscoring the potential for them to expand further in coming years, with Hong Kong likely to continue to play an important role.

Topics: China, Capital flows, Greater China, Investment

The surge in capital flows may be just beginning ipad