China Restricts Trade Data on Overseas Fund Flows

Stock exchanges have stopped releasing real-time data on foreign funds buying Chinese stocks, which is a key indicator for investors.

A woman leaves the stock exchange building in Shanghai, China, on Nov. 4, 2020. Hector Retamal/AFP via Getty Images

Beijing has restricted the release of daily data on overseas funds flowing into China as foreign investors continue to avoid the country.

Starting on Aug. 19, the Shanghai and Shenzhen stock exchanges stopped releasing real-time data on foreign funds buying Chinese stocks, which is a key indicator for investors. Instead, information on financial assets held by overseas entities will be released each quarter by China’s central bank.

According to the new data-release regulation issued by the Chinese Communist Party (CCP), only the total transaction amount and number of transactions will be announced, and only after the market closes on each trading day.

Under the new directive, for the “northbound” trades—which are from Hong Kong via the Hong Kong Stock Connect to the Shanghai and Shenzhen exchanges—only when the remaining balance is less than 30 percent on the same day will the quota balance for the day be announced in real-time.

When the remaining quota is more than 30 percent, only the term “sufficient quota” will be displayed, and the remaining quota will not be announced.

Through the Shanghai–Hong Kong Stock Connect, foreign investors can buy and sell Shanghai Stock Exchange stocks in Hong Kong, while Shanghai investors can buy and sell Hong Kong-listed stocks in Shanghai. The same practice applies to the Shenzhen–Hong Kong Stock Connect.

The restriction means that the terms of real-time trading data for the Shanghai and Shenzhen stock markets are no longer being disclosed, which cuts off the information on the flow of foreign funds investing in China’s A-shares through Hong Kong.

According to public data, in the first half of this year, foreign direct investment (FDI) in China dropped by 29.1 percent compared to the same period last year. In 2023, the total amount of FDI in China was $33 billion, a decrease of 82 percent from 2022, setting a record low since 1993.

Negative Impact on Investors’ Confidence

Paul Chiou, professor of finance at Northeastern University in Boston, told The Epoch Times on Aug. 19 that Beijing’s move indicates that the authorities are attempting to conceal the dire state of China’s financial markets.

“The CCP has been trying to save the stock market, but the results are insignificant. Now, when investors see that foreign capital is leaving, it will further affect their confidence to invest,” he said.

He pointed out that China’s information and data transparency is lacking, and a “similar issue has occurred before.”

“The release of various statistics was suspended without explanation, covering up the truth. This will actually hinder China’s economic development and investors’ ability to assess China’s economic health,” he said.

Economist Davy J. Wong told The Epoch Times on Aug. 20 that the new restrictions will discourage the international community from investing in Chinese markets.

An electronic screen displays (from top) the Hang Seng Index, Hang Seng China Enterprises Index (HSCEI), Hang Seng Tech Index, and MSCI China Index in Hong Kong on March 15, 2022. Paul Yeung/Bloomberg via Getty Images

“Foreign investors mainly invest in funds and enterprises. For short- and medium-term foreign investors, they will reduce the frequency of transactions because there is no reliable real-time data to refer to,” he said.

“Without real-time data, it is impossible to verify whether the final published data is accurate. Therefore, medium- and long-term investors are likely to be more cautious, potentially reducing the frequency of their investment transactions and shifting some of their investments out of China.”

Chiou shared some of the reasons why foreign capital is fleeing China.

“Restricting the release of real-time data increases market uncertainty and reduces market transparency. But the real factor determining foreign capital inflow and outflow is actually the prospects for investment in China,” he said.

“China’s current economic growth forecast is the main reason foreign capital leaves.”The Chinese regime has been tightening its control over political and economic information in recent years, such as by suspending the release of the youth unemployment rate in June 2023, when it hit a record high of 21.3 percent. The relevant age range is 16 to 24.

CCP authorities have repeatedly emphasized the need for China to engage in global trade. On Aug. 19, the State Council approved two documents on attracting and facilitating foreign investment into the country.

Regarding Beijing’s contradictory moves, Wong said they serve “the same political goal of the CCP, which is maintaining the regime’s stability.”

He continued: “The CCP wants to open up because foreign-funded enterprises and foreign orders are necessary to sustain the regime. But it is afraid that foreign capital and foreign companies also bring in foreign culture, which affects the CCP’s control over society.”

Chiou said the CCP is attempting to combine the concepts of socialism and the free market economy. “But they are completely opposite,” he said, adding, “That’s why there are many contradictions in the CCP’s economic policies.”

Luo Ya contributed to this report.