China could get $3 trillion from foreign investors by 2025

China could get $3 trillion from foreign investors by 2025

China’s policy of gradual opening to foreign investment could double its financial markets in size and attract more than $3 trillion in capital from abroad by 2025, according to the latest study by Citigroup Inc.

The “Stock Connect” link between China’s mainland markets and the Hong Kong Stock Exchange that lets global investors buy Chinese bonds through Hong Kong is one of the steps that represent the new approach, wrote Liu Li-Gang, Citigroup’s chief China economist in Hong Kong. “In years to come, 2017 could be viewed as a tipping point for global asset allocation,” Liu and his colleagues wrote. “Removal of restrictions to entry, together with eventual inclusion of China in various global capital market indexes, will raise foreign ownership of Chinese assets, likely creating further momentum for market broadening and deepening.”

Increasing foreign investments’ presence and internationalizing RMB are represent China’s ambition to replace U.S. in global trade leadership through One Belt, One Road initiative.

Bloomberg outlined more Citigroup study’s projections:

  • China’s nominal GDP, which is unadjusted for inflation, will reach $28 trillion by 2025 compared with $26 trillion for the U.S. based on anticipated growth rates and a gradual appreciation of the yuan to 5 per dollar from 6.8 now.
  • Some $3.36 trillion in new capital will flow in from abroad, with $779 billion to the bond market, $200 billion into equities and $2.38 trillion to bank assets (which are typically loans).
  • Based on their historical relationship with GDP, U.S. financial markets will total $137 trillion by 2025, and Citigroup assumes China’s would have about the same in yuan equivalent.
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