Investors worldwide are pinning their bets on China’s economic direction and capital outflows amid a fluctuating currency and volatile stock market. Simultaneously, firms and individuals are undertaking different approaches to diversify their investments. China is aware of its growing importance in the global markets, so talk of major capital controls is unlikely to materialize. Instead, what is more likely is a series of micro reforms to encourage inflows and curb outflows. As the government continues to control most economic levers, it is able to activate targeted measures to restrict capital leaving its borders. The real test is, however, whether these smaller changes are sufficient to steer the country in the right direction and have the desired stabilizing effect.
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