If the Chinese government eventually allows individuals to directly invest in overseas financial assets

Chinese people, especially the middle class, are usually interested to invest in stocks. If the Chinese government eventually allows individuals to directly invest in overseas financial assets, the global financial market will be boosted by the Chinese capital inflows. However, this policy may have some negative impacts on the Chinese economy. Overseas investment boom will drive increased demand for foreign exchange, leading to further depreciation of the renminbi (RMB). If the depreciation is greater than expected and the government does not strict its control on RMB, investors will start to panic and the price of RMB may eventually get out of control. The big fluctuation of the Chinese stock markets over the past several months has made most foreign investors withdraw from the Chinese markets, Chinese investors also want to invest in more mature markets. This will speed up the outflow of funds, leading to a possible depression in domestic financial markets. Under the current situation, I don’t think the Chinese government will take the risk to loosen capital controls.