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The Size and Destination of China's Portfolio Outflows

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  • Rose Cunningham
  • Eden Hatzvi
  • Kun Mo

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.

Suggested Citation

  • Rose Cunningham & Eden Hatzvi & Kun Mo, 2018. "The Size and Destination of China's Portfolio Outflows," Discussion Papers 18-11, Bank of Canada.
    • Handle: RePEc:bca:bocadp:18-11
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    Cited by:

    1. Isha Agarwal & Grace Weishi Gu & Eswar S. Prasad, 2019. "China’s Impact on Global Financial Markets," NBER Working Papers 26311, National Bureau of Economic Research, Inc.
    2. Isha Agarwal & Grace Weishi Gu & Eswar Prasad, 2020. "The Determinants of China’s International Portfolio Equity Allocations," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 68(3), pages 643-692, September.

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    More about this item

    Keywords

    Balance of payments and components; Econometric and statistical methods; International topics;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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