A Step Back for Global Financial Integration

In recent months, Chinese officials have launched an abrupt crackdown on Chinese companies’ offshore financing. Reports from last week suggest they may ban data-heavy firms outright from listing in the US. This note explores how the crackdown affects Chinese companies listed abroad. It also discusses the potential effects of further regulatory action on China’s financial account and broader US-China financial decoupling.

Key Takeaways:

  • Restrictions on offshore financing are painful to Chinese companies that sell bonds and equity abroad, but the macro impact is relatively limited. Offshore financing is heavily concentrated in a few companies and is small compared to financing from China’s domestic financial system.
  • Foreign investors will continue to invest in China, but the pace and scale of inflows could diminish. This would have significant implications for exchange rates and China’s financial system efficiency.
  • The crackdown is strengthening calls in the US for greater scrutiny of and restrictions on financial ties with China. Beijing’s push for financial decoupling is gaining steam as well, given new scrutiny of overseas listings.
Posted July 22, 2022
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