Components of private capital inflows to individual countries
Figure 1.3.3 shows the composition of capital inflows by individual country. For the two financial hubs, capital inflows easily exceed 10% of GDP, mainly driven by the category Others. Patterns of capital inflows to the PRC and Japan are stark contrasts: Whereas capital inflows to the PRC are mainly foreig...
n direct investment (FDI) and have been relatively smooth, the main component of capital inflow fluctuations in Japan are portfolio investment. This difference between the PRC and Japan seems to reflect their differing degree of financial market liberalization.
The relatively open financial markets of the Republic of Korea and Taipei,China experienced patterns similar to Japan’s, in that portfolio investment drove the wild swings in capital inflows around the crisis. In other Asian economies (except India), the role of portfolio investment was relatively weak, the amplitude of fluctuation relatively small, and the
patterns similar. In sum, capital inflows to Asia went through drastic fluctuations around the global financial crisis, driven mainly by portfolio investments into countries with relatively open financial markets. In particular, the quick rebound of capital inflows in 2009 and 2010, despite the heightened uncertainties and massive credit constraints in the advanced economies,
suggests that QE contributed to the sharp rebound of capital flows to Asia.
As capital outflows from Asia have not been as volatile as inflows, net
capital flow movements generally resemble inflow movements. Excluding
Singapore and Hong Kong, China, the average ratio of net capital flows to GDP fell to –0.3% in 2008 but recovered to 2.8% by 2010, driven mostly by fluctuations in portfolio investments, from –1.6% of GDP in 2008 to 0.8% of GDP in 2010. As for reserve accumulation, the PRC has been a
dominant player, accounting for 70%–80% of the total accumulated by the 10 sample economies from 2007 to 2011. This pace appears, however, to have significantly slowed in 2012. In terms of net aggregate financial account that includes reserve accumulation as well as private inflows
and outflows, most Asian economies were capital exporters prior to the crisis, with outflows larger than inflows (India excepted). After the crisis, however, capital export is shrinking in most countries, which may be related to global rebalancing.
--- Notes: As data for 2012 are available only to the third quarter for Hong Kong, China; India; and the Philippines, and to the first half
for the PRC, they are annualized by simple multiplication.
--- Source: ADB estimates from CEIC Data Company Ltd.