The decline in FX reserves has slowed. Currency effects may have played a role, but there are signs that capital controls are beginning to work: December saw the smallest level of outbound FDI since July 2015. This will buy President Xi some time.
Nevertheless, political risks remain. The abduction of Chinese billionaire Xiao Jianhua in Hong Kong is worrying and could accelerate capital flight. The financial account deficit for most of 2016 has been driven by net errors and omissions.
Summary
- FDI hit a record in 2016
- But capital controls starting to weigh on overseas investment
- Risks remain: abduction of billionaire Xiao Jianhua is worrying and could exacerbate capital flight
