China’s capital flows recover in final month of 2022 as US eases pace of rate increases and US dollar makes ‘noticeable retreat’
- Investors increased holdings of Chinese debt by US$5.1 billion in December, the first month of net inflows since February 2022
- Overseas investors also injected US$11.4 billion into Chinese stocks and bonds in the final month of the year
China witnessed a recovery in capital flows in December last year as the yuan strengthened against the US dollar after the US Federal Reserve slowed interest rate increases and Beijing pivoted from zero-Covid.
They also added US$6.3 billion to Chinese equities in December. In total, foreign investors injected US$11.4 billion into Chinese stocks and bonds in the final month of the year, marking the second month in a row of inflows.
“Recent years have seen China attract steady flows, even as other emerging markets experienced lots of volatility,” the IIF said in its monthly capital flow tracker released on Wednesday.
“That changed this year. Non-resident investor flows to China have essentially ground to a halt, which is consistent with anecdotes we pick up from market participants who have become more attuned to geopolitical risk.”
While the expectation of a Fed pivot helped to improve the overall picture, there are still pockets of risk