China Keeps More Of Its Money!

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What's going on?

China is successfully stemming the flow of money out of the country which is bigger news for international markets than it seems!

What does this mean?

In recent years, many Chinese citizens and companies increased the amount of money that they moved out of the country (which typically involves selling yuan and buying another currency, often dollars click here for more background). At first, the government dipped into its own savings of foreign currencies to buy back the yuan, in order to stop it from falling precipitously. But this led to a big reduction in the size of its piggy bank (i.e. savings) of foreign currencies China wouldnt have been able to afford to pursue that strategy forever.


So, the government decided to strengthen the limits on how much money could be taken out of the economy attempting to stop the problem at its source. The plan has been working: for the fourth month in a row, the size of the Chinese governments savings pot of foreign currencies increased (see more below).

Why should I care?

For markets: China is now increasing its holdings of dollars which could be important for bonds.

Money is still flowing into China lots of foreign companies and people want to invest there. Its just that less money is now flowing out of China. That, in short, is helping to increase the Chinese governments piggy bank of foreign currencies which it, reportedly, will invest in US government bonds, creating another factor thats recently pushed up the price of US bonds.


The bigger picture: Less Chinese money is flowing into foreign markets.

Because of the new barriers, its much harder for Chinese companies and investors to invest their money abroad. Cutting off a big segment of the international investing community from the global market means, for one, fewer Chinese-led mergers & acquisitions this year.

Originally posted as part of the Finimize daily email.

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