Commentary
China’s stock market rebounded more than 10 percent from the bottom since end-October. Analysts made buy calls against the backdrop of relieving COVID-19 measures. While the market was up, some funds flow statistics are not showing a consistent net inflow in recent days. And the rebounds of other markets like U.S., UK, and Europe over the same period of time were much stronger. Although the Chinese yuan is getting stronger, it is not easy to deduce a clear conclusion about funds flow from these fragmented pieces of information.
Yet, funds flow is somehow different from capital flow despite both being kinds of money. Funds normally refer to the spare money (liquidity) invested or speculated everywhere, usually in the financial market and in the shorter term. But capital has a more specific definition in economics: It is an input factor of production. Thus, capital is generally of the longer term and not confined to the financial market. Funds outflow may not pose too much harm to an economy, but capital outflow is different. In practice, however, the two are not easily distinguishable from data….