Outflows Could Slow CNH Rises

CBA says policymakers are easing restrictions on capital outflows

• "Persistent inflows and a stronger CNY have encouraged policymakers to loosen restrictions on capital outflows. Policymakers are exploring the feasibility of allowing individuals to invest in overseas securities.
• In our view, diversification needs will drive capital outflows by Chinese households if policymakers lift capital controls.
• China's capital account liberalisation still has a long way to go. The lesson of the 2015‑16 capital flight suggests policymakers will need to achieve a parallel improvement in sound financial regulation, FX and capital market developments and a robust banking system, when liberalising the capital account. However, the steady capital account liberalisation means China's households will become an emerging force in global financial markets. A large dose of capital outflows could also slow the rise in CNH. "