GOOD MORNING FROM LONDON
Is there a link between China’s loosening of capital controls on household wealth + the decision to allow Wall St – Goldman Sachs, JP Morgan + BlackRock – increased access to vast sums of dormant Chinese savings?
In June 2021, the FT reports, China permitted record amounts of money to flow out of the country through an official investment quota. It is part of a programme called Wealth Connect, that will allow households in southern China to invest overseas.
“This is a very interesting time for all of us,” says Terry Pan, chief executive officer for Greater China at Invesco, which is eligible to manage money through the programme. “Liberalisation is happening in front of our eyes.”
HSBC estimates that Chinese households will have Rmb300tn ($46.3tn) of investable assets by 2025 — an amount equivalent to the entire US bond market. With more outbound investment channels available, households have genuine choices to diversify into overseas securities, the Bank noted in May.
The significance? – China’s savings would have the capacity to flood international markets. HSBC has calculated that if 10% of households invested $50,000 abroad it would amount to $2.4tn.
A pilot scheme, expected to be launched this year, will allow households in nine Chinese cities in the Greater Bay Area — which includes Shenzhen and Guangzhou and is home to about 70m people — to invest up to Rmb1m ($154,000) in low and medium-risk funds domiciled in Hong Kong.
But China moves slowly. It knows time is on its side. It wants to make sure of its plans before it ventures overseas significantly. In the long term, full capital account liberalisation will only take place once all of the domestic structural fragilities are resolved.
Beijing is laying the groundwork for further reform, and present limits will be lifted.