A stronger renminbi and higher onshore asset valuations and yields have helped stem the flow of capital flight from China, Derrick Hong reports for the Asset:

“It is a result of natural evolution due to asset returns. In the first half of the year, Chinese ten-year government bond yields widened by around 100bp, and in the same period US ten-year bond yields dropped by around 30bp,” explains Wenjie Lu, China investment strategist at BlackRock. “Chinese assets look more attractive compared to offshore assets. That is a strong reason why capital outflow has slowed down.”

During the first half of 2017, China’s outbound direct investment was 331.1 billion yuan, 42.9% down from the same period in 2016. According to Keming Qian, a spokesperson at the Ministry of Commerce, outbound investment classified as ‘unreasonable’ has also slowed in the first half of 2017

“Chinese policy makers have no problem with M&A or investment but if these companies have to rely on very high leverage, even some shadow credit tools, there are some restrictions,” says Lu. “Going forward, with the appreciation of the currency and given that the growth and stability of the economy are improving, I do not expect there will be strong outflows in the coming quarter.”

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