China welcomes ‘important’ capital inflows with economy still reeling from coronavirus outbreaks

US$2.7 billion of net funds flowed into Chinese equities in May, according to the Institute of International Finance (IIF)

An estimated US$30.4 billion flowed out of China’s bond market in February and March due to the impact from Russia’s invasion of Ukraine

2-MIN READ2-MIN

After suffering an ‘unprecedented’ sell-off in late February due to the impact from Russia’s invasion of Ukraine, China saw US$2.7 billion of funds flowing into Chinese equities in May, according to a new report. Photo: AFP

Published: 4:59pm, 8 Jun 2022Updated: 6:07pm, 8 Jun 2022

China saw a reversal of its capital exodus in May amid growing pressure on the economy from a resurgence of coronavirus outbreaks, with “important inflows” last month, according to a new report.

The world’s second largest economy has taken a heavy blow from a prolonged lockdown in its international hub of Shanghai and mobility restrictions in other major cities, including the capital Beijing.

But according to the Institute of International Finance (IIF), while there was a “considerable portion of flows escaping China equities for most of the month”, during the last week of May there were “important inflows”, which drove in a net inflow of US$2.7 billion of funds into Chinese equities.

“The perspective for debt flows seems to be stabilising, with China registering US$2 billion of inflows, while emerging markets excluding debt showed US$3.5 billion of outflows,” the IIF said in its global fund tracker for May, which was released on Tuesday.

There is some speculation that global markets may see China in a new light after Russia’s invasion of Ukraine, though it is certainly too soon to make any definitive judgment

IIF

China suffered an “unprecedented” sell-off in late February after Russia’s invasion of Ukraine, with an estimated US$30.4 billion flowing out of its bond market in February and March.

The US$7 billion of equity outflow in March was also the largest since the initial coronavirus outbreak in 2020.

“In the aftermath of Russia’s invasion of Ukraine, we flagged non-resident outflows from China, which were noteworthy because China very rarely registers meaningful outflows. There is some speculation that global markets may see China in a new light after Russia’s invasion of Ukraine, though it is certainly too soon to make any definitive judgment,” the report added.