China’s cross-border capital flows will remain stable and there will not be large-scale capital outflows, as the country has large-scale foreign trade surplus, stable economic and financial fundamentals, relatively high direct return on investment and an open market.
Capital outflows mainly come from payment of foreign debts by enterprises, expenses on “going global” and the increased holding of overseas financial assets.
The international balance of payment data showed that capital outflows caused by the payment of foreign debts in the first half year were only 20 percent of the amount of the second half of last year, and the current speed of payment of foreign debt is really hard to increase, considering import enterprises and multinationals need to hold foreign currencies to maintain operations.
The regulations on overseas financial assets held by residents and institutions (such as those on the cap on the purchase of foreign currency and Qualified Domestic Institutional Investor) will not bring continuous large-scale capital outflows. When residents purchase foreign currencies, they carry the risks of losing value, so the total purchase amount is also controllable.
Besides the controllable capital outflows, China has stable and large-scale capital inflows, which are mainly attributed to current account surplus and foreign direct investment (FDI).
The current account surplus is large-scale and stable, and the situation is expected to be maintained within a certain time.
Capital inflow is also affected by the rate of exchange settlement of the enterprises. However, even some enterprises have delayed or reduced the settlement of foreign exchanges, that will not affect the general trend, since they need to transfer their foreign exchange earnings to RMB to maintain normal operations.
Although the growth of FDI this year is slower than previous years, foreign businesses still can get high return in China, which could bring stable capital inflows. And since March, overseas institutions have been increasing their holding of yuan-denominated bonds, which also bring the inflows.