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'Unprecedented' capital outflow from China after invasion of Ukraine - IIF

'Unprecedented' capital outflow from China after invasion of Ukraine - IIF

According to the International Finance Institute (IIF), investment money has been withdrawn from China on an "unprecedented" scale since Russia invaded Ukraine in late February, marking a "highly unusual" shift in capital flows in emerging markets.

In a report on March 24, IIF revealed that its high-frequency data detected large capital outflows from Chinese stocks and bonds, despite continued capital inflows into other emerging markets.

Chief Economist Robin Brooks and his colleagues noted in their report, "The large and intense capital outflows from China that we are seeing are unprecedented. In particular, we have not seen similar outflows from other emerging markets. The timing of the capital outflows, which followed Russia's invasion of Ukraine, may be causing foreign investors to look at China in a new light, but it is too early to draw definitive conclusions on this point," they said.

According to official data, February marked the largest decline in Chinese government bond holdings by foreign investors on record. This is partly due to Russia's invasion of Ukraine, which spurred redemptions by global bond investors. Sanctions have frozen foreign reserves held by the Russian central bank in euros and dollars, leading to speculation that the country's government will sell its holdings of Chinese assets to raise funds.

China's stock market also fell sharply earlier this month. Foreign investors pulled back due to concerns that sanctions against Russia by the United States and the European Union might spill over into China in some form or other. Since then, Chinese stocks have rallied since last week as policymakers have expressed support for the capital market.

'Unprecedented' capital outflow from China after invasion of Ukraine - IIF