To get rid of one-way expectations that the yuan will depreciate, China must liberalize its capital market to allow foreign participation and attract renewed capital inflows, said Liu Ligang, Managing Director and Chief Economist for China at Citigroup. “If China opens its capital market to foreign investors effectively, the country will soon draw substantial capital inflows, which will change depreciation expectations on the renminbi,” he said in Beijing. The People’s Bank of China (PBOC) is considering including the government bond market in some global government bond indexes. If it were to be included in Citi’s World Government Bond Index with an initial share of up to 5%, the associated capital inflow could be as large as USD100 billion to USD150 billion, according to a recent Citi report. Zhu Haibin, Chief China Economist at JPMorgan Chase & Co, said in a research note: “In China’s case, capital outflow has been a major policy concern in recent years. Brexit could strengthen the asymmetric strategy in capital account openness in China, i.e. continue to make further progress to encourage capital inflows, but be cautious in moves on capital outflows.” Perhaps because of Brexit, the yuan has become weaker against the U.S. dollar recently, but that does not mean the Chinese currency is overvalued, as the country recorded a huge trade surplus of USD240 billion during the first half of 2016 and USD600 billion last year, Liu said. Depreciation pressure was mainly driven by an increasingly large capital account deficit, he added. China has started to see large capital account deficits recently. However, a large portion of the deficit was due to errors and omissions, the China Daily reports.

Chinese companies continued to boost their overseas investment in the first half of the year. China’s non-financial outbound direct investment (ODI) rose 58.7% from a year earlier to CNY580.28 billion. In June, ODI rose 44.9% year-on-year to CNY100.17 billion. Around USD17.59 billion went to manufacturing in the first half, up substantially by 245.6% from a year ago. Chinese companies secured around USD51.45 billion worth of projects in 61 countries involved in the Belt and Road initiative in the first six months, up 37% from a year ago.

ChIna has insisted its duty and quota requirements on the export of 11 raw materials conform to WTO rules, following a complaint by the United States. The U.S. requested consultation with China on the country’s export duties on chromium, as well as China’s export quotas on antimony, indium, magnesia, talc and tin. The U.S. Trade Representative claimed that China’s measures provided an unfair competitive advantage to China at the expense of American workers and manufacturers. The European Union also filed a complaint with the WTO. Washington said it had expanded its complaint to include all the same materials covered in the European action. But China’s trade authorities defended the curbs, saying they were meant to protect the environment and comply with WTO rules. The U.S. complained that Beijing’s export duties raised prices for overseas buyers while local companies paid much less and had more secure supplies and that they put pressure on non-Chinese manufacturers to shift production, technologies and jobs to the country.

The European Council adopted its EU Strategy on China at its meeting held on 18 July 2016.

The Council’s conclusions can be downloaded in PDF format here.

China needs to make a strategic shift in its health care reform to avoid ballooning costs as its population greys and its economy slows, according to a report by the World Bank, the World Health Organization (WHO) and several ministries. Without significant changes, annual expenditure could rise from CNY3.5 trillion in 2014 to CNY15.8 trillion by 2035, an increase of 8.4% a year, the report said. Health spending would account for more than 9% of gross domestic product (GDP) in 2035, up from 5.6% in 2014, with more than 60% of the increase coming from in-patient services. China had a “critically important opportunity” to avoid the high costs of health systems seen in many member countries of the Organization for Economic Cooperation and Development (OECD), the report said. The country could achieve that goal with the help of “deeper reform in the health care system to deliver high-quality care at a reasonable cost,” World Bank Group President Jim Yong Kim said. The report also warned that Beijing was at risk of making the same mistakes many higher-income countries had. As China’s economy loses steam, increasing spending on health care might be difficult to sustain, the South China Morning Post reports.