China Update

Over the past decade cash from China has been deployed into assets such as stock, bonds and real estate around the globe. The Chinese government, concerned by the level of cash leaving the country, has put capital controls into place to slow this flow of cash leaving the country.

From the Wall Street Journal:

China’s seemingly insatiable demand for foreign assets has driven up prices for everything from U.S. Treasury bonds to global companies to luxury real estate. Now, a combination of market forces and capital controls are choking off the flow of Chinese cash. Asset markets around the world will have to adjust.

As Chinese exports boomed starting in the early 2000s and foreign investment flooded into the country, the central bank recycled these inflows into foreign government bonds, mostly Treasurys, to keep the yuan from rising. The buying persisted for over a decade, driving bond prices up and driving yields down globally.