China needs money

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New open door policy

Bloomberg announced that China is opening its doors. Beware.

China's last welcome to foreigners feels despair.

Global funds no longer need quotas to buy Chinese stocks and bonds, the US Public Administration of Foreign Exchange announced on Tuesday. This removes the obstacle to foreign investment that has been in place for almost two decades since the country first authorized access to its financial markets.

The removal of the quota is less liberalization ensured by a mature economy and financial system than a confession that the country needs money. China has dangerously close the double deficit of its budget and current accounts. It needs as much foreign capital as it can get – even in the form of dynamic portfolio flows – to keep control of the balance of payments and avoid further debt build-up.

This thirst for overseas funds explains why China has opened its financial services sector, allowing global investment banks to take majority control of their local brokerage joint ventures after years of resistance. The question now is whether foreigners will bite at the hook.

Michael Pettis on the dismantling of an FDI quota