Nomura Asia Insights: China: Will Steady RMB Appreciation Attract Capital Inflows?
Summaries are public. PDF access requires an active membership; all members have the same access. Sign in
Nomura argues that a strategy of steady RMB appreciation will not effectively attract capital inflows, as the current macroeconomic environment differs fundamentally from the pre-2014 era. Since the bursting of the property bubble in mid-2021, depressed housing price expectations, inverted interest rate differentials, tighter capital controls, and geopolitical tensions have severely diminished the appeal of a 5% annual appreciation.
Since early November 2025, the RMB has appreciated 3.2% against the US dollar, with USD/CNY dropping to 6.91 on March 6, 2026. However, the trade-weighted basket increased only 0.4%. Nomura highlights that home prices have plunged over 35% from their 2021 peak. Furthermore, the 10-year government bond yield spread between China and the US sits at approximately -240 basis points, a stark contrast to the pre-2022 positive environment.
Historically, capital inflows were driven by RMB appreciation expectations, a booming real estate market, and high interest rates. Following the August 2015 exchange rate reform, massive capital flight occurred, exceeding $400 billion in quarterly outflows. With foreign direct investment dropping from $344 billion in 2021 to $19 billion in 2024, relying on currency appreciation to reverse current outflows is unrealistic. Addressing trade imbalances fundamentally requires resolving property market issues and boosting domestic consumption.