The FT explains here that China has managed to stem the flight of capital from the country with tighter capital controls, but this is likely more of a Band-Aid than a solution. Capital that wants to leave China will eventually find its way around tighter controls. Look for China’s currency, the yuan to continue to weaken as a result.
Foreign property investment by Chinese companies plunged by 84 per cent last month, as Beijing’s capital controls choked off the flow of foreign acquisitions.
In an effort to curb capital outflows and ease downward pressure on the renminbi, Chinese regulators have in recent months imposed a series of restrictions on outbound dealmaking. The curbs came after outbound investment in non-financial assets surged by 44 per cent in 2016 to a record $170bn.
The restrictions have had an effect. Overall non-financial outbound investment fell 36 per cent in January from a year earlier to Rmb53bn ($7.8bn), the commerce ministry said on Thursday, following a 39 per cent drop in December.
The commerce ministry did not reveal actual figures for January, but the sharp slump in foreign real estate investment comes after an overall 53 per cent surge last year to a record $33bn, according to separate data from JLL, a global realtor.
Read more here.
Jeremy Jones, CFA
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