cover image: The Size and Destination of China's Portfolio Outflows /

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The Size and Destination of China's Portfolio Outflows /

1 Oct 2018

'The size of China's financial system raises the possibility that the liberalization of its capital account could have a large effect on the global financial system. This paper provides a counterfactual scenario analysis that estimates what size and direction of China's overseas portfolio investments would have been in 2015 if China had had no restrictions on these outflows. In such a scenario, China's holdings of overseas portfolio assets would have been between US$1.5 trillion and US$3.2 trillion (13 to 29 per cent of Chinese GDP), or 5 to 12 times its actual holdings of US$281 billion. Our model estimates that these additional holdings would have been predominantly directed to the world's deepest financial markets, especially the United States, while emerging-market economies would have received little additional portfolio investment. These results suggest that the liberalization of Chinese portfolio outflows may not prove disruptive to the global financial system, although it could have important implications for China.'
china economics economy exchange rate capital controls emerging markets investments mathematics bank international monetary fund capital control bank of canada capital account asset allocation volatility bond market correlations correlation and dependence residuals vix emerging-market
ISSN
19140568
Pages
36
Published in
Ottawa, ON, CA

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