China receives net inflows of capital | article

Inflows were stronger than outflows

China is closely monitoring capital outflow transactions, which partly explains the small net outflows in 2019. But this is only part of the story.

The weakness of the dollar is another example: it increases the holdings in USD of other currencies and consequently the value of China's foreign exchange reserves. This could be further increased, as China opted this year to increase its holdings in currencies other than the US dollar.

A more important factor is the inclusion of Chinese badets in the global benchmarks.

1. Inclusion of A shares in MSCI, which attracts pbadive funds to load A shares.
2. FTSE Russell launched the first phase of the inclusion of A shares at the end of June.
3. The inclusion of onshore bonds in the Bloomberg aggregate index is similar to the inclusion of A shares in MSCI.
4. Secondly, Chinese regulators increased RQFII quotas (qualified foreign institutional investment quotas in renminbi) so that foreign investors could invest directly in the onshore market.

The IMF estimated that equity and bond funds, both pbadive and active, would create capital inflows of up to $ 450 billion in China in 2019-20, or between 3% and 4% of GDP. .

These actions make net inflows rather than net outflows more likely for the remainder of 2019, or even up to 2020.