China embraces rising capital inflows as rivalry with US intensifies
- Investors are increasingly pouring money into a post-coronavirus China, but the trend could reverse if current high interest rates are lowered or the US dollar strengthens
- Chinese authorities are relying on market instruments to regulate cross-border capital flows, and ‘won’t step in unless unusual or extreme circumstances occur’
Beijing is relishing its current role as a darling for global investors, despite rising tensions with Washington, as large inflows of portfolio and fixed-asset investment funds make their way into China.
While the US Federal Reserve and central banks of other major economies are splashing out money to protect economic activities and jobs, China is seeing a steady flow of funds into its bonds, stocks and investment projects. This is allowing the People’s Bank of China to take a prudent monetary stance and to keep its benchmark interest rate relatively high, which in turn is helping attract more capital inflows while helping offset Washington’s attempts to decouple from China.
The momentum could give Beijing a chance to advance its strategic goals of boosting the international profile of the yuan, while integrating its domestic market more closely with the world, according to public speeches by Chinese officials, as well as government researchers and economists the Post talked to.
Analysts agree that the current capital inflows are a good thing. But they also point out that the trend could be reversed by a stronger US dollar, if the US Federal Reserve increases interest rates, or if China lowers interest rates.
Yu Yongding, a leading Chinese economist and a former adviser to China’s central bank, said the country’s export surplus, as well as optimism among foreign investors on the outlook for the Chinese economy, is helping to strengthen the yuan and drive money into China.