Opinion: China's financial markets enter global arena

Investors worldwide are pinning their bets on China's economic direction and capital outflows amid a fluctuating currency and volatile stock market. Simultaneously, firms and individuals are undertaking different approaches to diversify their investments. China is aware of its growing importance in the global markets, so talk of major capital controls is unlikely to materialize. Instead, what is more likely is a series of micro reforms to encourage inflows and curb outflows. As the government continues to control most economic levers, it is able to activate targeted measures to restrict capital leaving its borders. The real test is, however, whether these smaller changes are sufficient to steer the country in the right direction and have the desired stabilizing effect.

At an individual level, the Chinese are investing in foreign property, but also purchasing life insurance products and other assets as a way of hedging their bets. There are clearly those who are concerned about keeping their assets in China. Certain programs, which enable the Chinese to invest offshore, have reportedly been suspended to curb the flight of capital, and payment channels, such as the use of Unionpay for insurance transactions, are being tightened.

Capital is leaving also at the company level, but more strategically. For instance, state-owned enterprises are looking to invest in foreign markets to expand their marketplace and revenue streams. This trend is manifesting through a surge in outbound investment activity. This is overall a positive development for China and demonstrates the growing maturity of its economy. The Chinese government has major policies in place to sustain outbound investment, with One Belt One Road being its landmark development plan. The impact of these policies are real and, such as in the case of the Belt and Road initiative, they are creating substantial economic opportunities. There is an increased focus among domestic companies in pursuing offshore acquisitions to diversify investment portfolios while the currency is still relatively strong.