Focus topics

No decoupling in financial markets

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  • Amidst all the talk about “Dual Circulation”, and “Self-sufficiency”, highlighting China’s current inward-looking focus, China is gradually opening up its capital accounts, improving the attractiveness of its capital market for international investors and at the same time allowing more domestic capital to flow into overseas capital markets.
  • This is not necessarily a contradiction: inbound investments provide more financing options for the domestic economy and strengthen the “internal circulation”. Additional political motives from the Chinese perspective: utilizing the expertise of foreign financial players and boosting RMB internationalization.
  • For offshore investors, adding Chinese assets into their portfolios also carries many promises: large interest rate differential, low return correlations with global markets, and opportunities to share in China’s still high economic growth.
  • More recently, the harsh crackdowns on technology companies and the private education sector led to a mild reversal of capital flow in the third quarter of 2021. Unexpectedly severe government interventions like this have a strong chilling effect on investors, illustrating that China’s policy communication and transparency vis-à-vis international investors is still lacking.

Sinolytics is a European consulting and analysis company that focuses entirely on China. It advises European companies on strategic orientation and specific business activities in China.


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