Under the influence of important flows and strategic decisions in global markets, capital flows in China reached a record level in July. Active purchase of financial assets in Hong Kong and the application of new liberalization measures by the country’s government directly influenced this process. The emergence of this process signifies a new stage for currency policy and global market participants.
Banks and capital flows
During July, local banks spent a total of 58.3 billion dollars on foreign securities on behalf of their clients. This is the highest figure since 2010 and indicates a new economic direction. One of the main reasons for the expansion of capital flows is the strong interest among investors to diversify their portfolios. This leads to closer integration of China’s financial flows with global markets.
Hong Kong and bonds
The main part of the capital flows is related to stocks associated with Hong Kong and the expansion of the "Southbound Bond Connect" program. This year, interest in foreign bonds through this program increased significantly, and onshore investors in July purchased external debt securities worth 12.6 billion yuan (1.8 billion dollars). This strengthens the government’s policy of gradual liberalization of financial markets. Investors’ risk appetite is growing, which leads them to direct most of their investments to international markets.
Foreign funds and declining interest
However, foreign investors continue to reduce interest in China’s domestic bonds. In July, their interbank bond portfolio decreased by 300 billion yuan, the lowest level since the beginning of 2024. The declining attractiveness of Chinese securities is also associated with increased interest in global alternative assets. This, in turn, may put pressure on the yuan exchange rate in capital flows.
China’s policy and future prospects
With these current policies, China’s integration into the global economy is accelerating. Experts believe that the Chinese government’s experience with capital flows and integrating its financial base into international markets is a very important step. This situation contributes to increasing the international status of the yuan. Thus, although capital flows may pressure other currencies, in the long term, it can strengthen China’s integration into the global economy.
Conclusion
At the same time, China’s economy seeks closer integration with global markets, creating positive effects from capital flows. Policies and strategic decisions carried out by the Chinese government have a significant impact on the country’s economic system.
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