The size and destination of China’s portfolio outflows

Abstract

The size of China's financial system raises the possibility that the liberalization of its capital account could have a large effect on the global financial system. This paper provides a counterfactual scenario analysis that estimates what the size and direction of China's overseas portfolio investments would have been in 2015 if China had had no restrictions on these outflows. In such a scenario, China's holdings of overseas portfolio assets would have been between US$1.5 trillion and US$3.2 trillion (13 to 29 per cent of Chinese GDP), or 5 to 12 times its actual holdings of US$281 billion. Our model estimates that these additional holdings would have been predominantly directed to the world's deepest financial markets, especially the United States, while emerging-market economies would have received little additional portfolio investment. These results suggest that the liberalization of Chinese portfolio outflows may not prove disruptive to the global financial system, although it could have important implications for China.

The Determinants of China’s International Portfolio Equity Allocations

“…Krueger and Pasricha (2016) provide various scenarios for the size and composition of capital flows that would ensue if China were to open its capital account and its gross international investment position were to begin converging to the G-20 average. Cunningham, Hatzvi, and Mo (2018) argue that, if China had had no restrictions on portfolio outflows, its overseas portfolio assets in 2015 could have ranged from $1.5 trillion to $3.2 trillion in 2015, relative to the actual figure of $281 billion. 10 See Miao and Deng (2019) for an overview of China's motivations for opening its capital account and the approach it has followed.…”

China’s Impact on Global Financial Markets

“…Krueger and Pasricha (2016) provide various scenarios for the size and composition of capital flows that would ensue if China were to open its capital account and its gross international investment position were to begin converging to the G-20 average. Cunningham, Hatzvi, and Mo (2018) argue that, if China had had no restrictions on portfolio outflows, its overseas portfolio assets in 2015 could have ranged from $1.5 trillion to $3.2 trillion in 2015, relative to the actual figure of $281 billion.…”