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‘Reasons for Increases In Cross-Border Capital Flows into China’

Peterson Institute for International Economics (PIIE)

Malcolm Riddell

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CHINADebate

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Nick Lardy & Tianlei Huang | PIIE

‘Reasons for Increases In Cross-Border Capital Flows into China’‘Reasons for Increases In Cross-Border Capital Flows into China’
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China’s Financial Opening Accelerates
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China’s Financial Opening Accelerates

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'Cross-border portfolio capital flows into China have been rising since 2014.'

Read the 12-page report, 'China’s Financial Opening Accelerates'

'Cross-border portfolio capital flows into China have been rising since 2014.'

  • 'Foreign ownership of onshore (excluding Hong Kong) Chinese stocks and bonds reached RMB5.7 trillion ($837 billion) at the end of September 2020, a nearly eightfold increase from January 2014 levels.' (Figure above)

'Several factors have contributed to the rapid increase in foreign holdings of onshore renminbi-denominated Chinese securities.'

1. 'Chinese stock and bond markets have grown rapidly since 2014 and have become too big for global investors to ignore.' (Figure 2, below)

2. 'The number of channels that facilitate foreign portfolio investment has also grown.'  

  • 'In July 2017, China launched the Bond Connect program, letting foreign investors access the China Interbank Bond Market.'  

3. 'The inclusion of Chinese securities in global stock and bond indices, like the Bloomberg Barclays index, drew institutional investing.'  

  • 'There are signs that China's integration in global financial markets will continue to deepen.'  

4. 'Interest rates on Chinese government bonds are higher than the US interest rate, and a rate cut is unlikely.' (Figure 3, below)  

5. 'The renminbi appreciated about 6 percent vis-à-vis the dollar between January and early December 2020; from its low point in late May, it appreciated 8 percent (figure 4, below).'

  • 'Foreign investors can now both earn higher returns on Chinese bonds and convert their RMB earnings back into dollars at a more favorable rate.'

6. ‘China's rapid economic recovery from the COVID-19 pandemic reflects the profitability of Chinese industry, which is driving its strong equity market performance.’ (Figure 5, below)


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