what is steering the direction of capital flows?
author: wu ge cao haiwei yu tao gao tong
as a basic element of economic life，capital flow has its own running rules. cross-border capital flows are affected by both external and internal factors. the external factors include policies and economic fundamentals of major overseas economies，global risk preference，etc.，while internal factors include domestic policies and economic fundamentals，institutional changes，etc.
recently，there are evident signs of short-term capital outflows. since march，net outflows through the northbound stock connect program with china’s hong kong nearly reach the level of that during the wuhan lockdown in 2020. according to iif statistics，in march，china has capital outflows of us$11.2 billion in bonds and us$6.6 billion in stocks，the highest among emerging market countries in the same period. in a situation where the fed is widely expected by the market to aggressively raise rates and downsize the balance sheet while china’s covid-19 waves increase short-term volatility of economic fundamentals，both the external and internal factors exist to influence capital flows. what is steering the direction of capital flows? is it a short-term perturbation or a long-term trend?
