Analysis | China’s capital controls may sink bid for inclusion in MSCI, again

China’s fourth attempt to get the country’s yuan-denominated A shares included in the MSCI Emerging Markets Index may end in failure, because the government’s current crackdown on capital flight is stifling the flow of funds and worrying global investors.

The latest sign came on Monday, when MSCI’s chairman and chief executive Henry Fernandez said in a Reuters interview that China’s crackdown on capital flows was a concern.

“If they reverse course and they restrict the ‘out’ door, then how can we?” Fernandez told Reuters. “It’s going to be hard for the MSCI to put the A shares into the index because we will not be doing a good service to our clients.”

China’s government has been cracking down on capital remittances to stem the flow of money out of the country amid the depreciation of the yuan.

The regulators last year also restricted the purchase of insurance products in Hong Kong by mainland customers, while ordering financial institutions to report any offshore cash transactions exceeding 50,000 yuan.

The Chinese currency weakened 7 per cent against the US dollar last year, weighed down by a strong dollar that’s rushing home, attracted by the US Federal Reserve’s interest rate increases.