China has limited investors’ access to foreign assets due to capital flight
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Chinese authorities have limited retail investors’ access to funds investing in foreign securities, reports Financial Times (FT). The only way for Chinese retail investors to invest in foreign assets is through the government’s Qualified Domestic Institutional Investor program. 186 funds take part in it. At the same time, the total size of their potential investments in foreign securities is limited.
At the end of 2023, the quota stood at $166 billion, and Chinese investors were rapidly approaching exhaustion. The FT reports that 79 Chinese funds participating in the program have already announced they will stop selling overseas assets to Chinese retail investors. Another 53 have limited the size of investments. Thus, restrictions for retail investors were introduced by about 30% of funds participating in the program.
A fund manager specializing in US equities told the FT they had received informal instructions from the Shanghai Stock Exchange to cut sales of such products after demand became “off the charts”.
Restrictions on retail investors are not the first attempt by Chinese authorities to stop capital flight. Thus, in October, the Securities Regulatory Authority (CSRC) issued prescription, which prohibits local brokerage firms and their overseas affiliates from opening new accounts for mainland Chinese clients through which they can trade offshore securities and other assets. This decision was made after in August, according to Bloomberg, capital outflow from the country amounted to $49 billion, which was a record high since December 2015.
In addition, foreign investors are actively leaving China. Thus, according to the results of the third quarter of the year there was fixed the first ever reduction in China’s direct investment (FDI) liability, which captures cash flows associated with foreign companies operating in China. The decline in this indicator indicates a net outflow of foreign capital from the country amid the reluctance of foreign companies to reinvest their funds in China.
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