The PBoC’s attack on short-sellers has provided some respite for the renminbi. China is imposing stricter capital controls. A clampdown by US and European authorities on Chinese FDI may also support the renminbi this year.
Some of the M&A outflows have been in strategic sectors, such as semiconductors and software. Nevertheless, China has established itself as an innovator – not just an imitator – and its companies are now rivalling the global US tech giants.
Forecasts for global growth have been revised significantly higher. Chinese producer prices climbed sharply again in December. The sell-off in corporate bonds continues. The yield on BofA ML’s Chinese corporate bond index rose to 7.529% on Tuesday, the highest since February last year, before slipping to 7.313% on Wednesday. The risks are high, but the sell-off in the corporate bond market may speed up China’s transition.
Summary
- European and US regulators wary of Chinese M&A flows into strategic sectors
- Restrictions on FDI may ease pressure on renminbi
- But will not dent China’s sophisticated tech sector
