Chinese investors look south to Hong Kong as outflow rules ease
- Strong outflow of capital driven by China’s strong post-coronavirus recovery and greater financial opening up
- Brisk two-way flows will help broaden the country’s forex market, senior regulatory official says
The January total released by the State Administration of Foreign Exchange (Safe) on Friday for southbound investment – or buying of offshore stocks by mainland Chinese investors – did not include previous monthly figures but it is about one-tenth of the 2.13 trillion yuan (US$328 billion) of Hong Kong-bound investment reported in the six years of the scheme.
It was in line with data from the Hong Kong stock exchange that indicated a sharp rise in Hong Kong-bound purchases from HK$60.2 billion (US$7.7 billion) in December to HK$310.6 billion in January.
Chinese authorities have allowed southbound purchases since November 2014, but this investment has generally been dwarfed by northbound purchases, or investment into mainland China, thanks to stronger economic prospects there.
But this changed in the second half of last year, when a large inflow of capital, driven by China’s strong post-coronavirus recovery and greater financial opening up, lifted the yuan-US dollar exchange rate to a 30-month high. The Chinese currency rose about 6 per cent last year, and continues to strengthen.
“The two-way brisk flows will help broaden China’s forex market,” Safe deputy director Wang Chunying said.
The sharp rise in southbound stock purchases could signal more capital relaxations as China’s financial regulators grapple with massive inflows.
Foreign investors increased their holdings of Chinese bonds by US$93.6 billion last year, while in January their purchases of both bonds and stocks rose by US$41.6 billion, according to Safe.