Luring more foreign funds into China would obviously help counter outflows. In particular, Chinese officials have been courting compilers of global stock and bond indexes, such as MSCI Inc., to get the countrys assets included. Such acceptance would be a coup: HSBC Holdings Plc estimatedthat inclusion in major bond measures could help draw as much as $150 billion to Chinese government debt, and a probable $30 billion if shares were added to MSCI gauges.
Ironically, its Chinas limits on the freedom to withdraw money from the country that discourages inflows. MSCI cited restrictions when it decided against adding Chinese shares to its global indexes in June, saying the limits remain a “significant hurdle” for investors.
All these measures aside, as long as Chinese financial markets remain weak and monetary policy continues to diverge with the U.S.s, money is likely to keep exiting the nation.
“Capital-control measures can help mitigate the pace of capital outflows in the short term,” said Morgan Stanleys Xing. “However, the fundamental factors behind the outflow -- decline in investment returns in China and a continued slippage in interest-rate gaps between China and the U.S. -- have remained in place and will likely keep capital outflow pressures alive in the medium term.”