Capital flows balanced despite rise in trade tensions

Against a backdrop of rising trade tensions with the US and jitters about the wider outlook for emerging economies, capital flows in and out of China have been broadly balanced. Global investors still appear to be fairly optimistic about the prospects for China’s economy, with foreign firms and investment funds continuing to add to their holdings of Chinese financial securities at a very rapid pace in May.  Domestic investors don’t appear worried about the country’s outlook either, with Chinese households and firms actually slowing their acquisition of foreign financial assets last month. This upbeat sentiment helps to explain why the renminbi has been one of the best performing EM currencies over recent weeks and why the PBOC has been able to stay on the side-lines.