Chinese Capital Control Reforms on Track Despite Outflows

China is signaling that it’s not letting record outflows this year deter capital-market reforms.

The central bank is finalizing revisions to its foreign-exchange rules that would loosen some capital controls while preserving its ability to intervene in times of volatility, people familiar with the matter said on Monday. The monetary authority said Friday that it will consider a trial program in the Shanghai free-trade zone, allowing residents to buy overseas assets directly and opening up yuan-denominated bonds to trading by foreign companies. Other initiatives include permitting Chinese firms to trade derivatives and establishing securities joint ventures with international companies.

The measures were announced in the face of an unprecedented exodus from China following a surprise devaluation in August and a two-month-long stock-market rout. Investors pulled $194 billion from the country in September, extending this year’s outflow to $669 billion, according to data compiled by Bloomberg.

“A lot of people suggested that if the economy slows, if there’s more volatility, the Chinese will drop the reforms,” said Andy Rothman, a San Francisco-based investment strategist at Matthews Asia, which manages $26 billion in assets including Chinese stocks. “I don’t think that’s the way the Chinese government views it. They are not worried about the scale of the outflows.”

via Bloomberg

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza