Foreign Investors Increase Holdings in China as Global Capital “Rebalancing” Accelerates

As China’s economic fundamentals continue to improve, foreign investors are stepping up their allocation to Chinese assets, with the A-share market gradually becoming a new area of strategic focus. According to the latest data from the State Administration of Foreign Exchange, net foreign holdings of domestic stocks and funds reached USD 10.1 billion in the first half of 2025, reversing the net selling trend observed over the past two years.

Industry participants widely agree that global capital is undergoing a process of “rebalancing,” and the current proportion of foreign holdings in A-shares still leaves ample room for further growth. With China’s ongoing economic transformation and the steady influx of long-term capital, the A-share market presents significant medium- and long-term development potential.

Cross-border capital inflows have been sustained. Jia Ning, Director-General of the Balance of Payments Department at the State Administration of Foreign Exchange, stated at a press conference held by the State Council Information Office on July 22 that net foreign holdings of domestic stocks and funds rose by USD 10.1 billion in the first half of 2025, reversing the overall net reduction trend of the previous two years. In particular, net additions in May and June reached USD 18.8 billion, reflecting an increased willingness among global investors to allocate capital to Chinese equities.

Jia emphasized that China’s stable economic fundamentals have created a sound macro environment for foreign investment. As policies to expand domestic demand begin to take effect, the momentum of economic stabilization and improvement is expected to be further reinforced. Several international investment banks have recently upgraded their outlook on Chinese assets from “neutral” to “overweight,” expressing greater confidence in the country’s growth prospects.

The stability of China’s foreign exchange market has further strengthened global investors’ confidence. According to estimates by Goldman Sachs, cross-border capital inflows into China amounted to USD 30 billion in May and USD 4 billion in June. In June, foreign exchange inflows under the current account totaled USD 23 billion.

Behind the increase in flows into China lies a broader shift in global capital allocation. Fidelity International noted in a recent report that investors are reducing their overweight exposure to U.S. equities, particularly large-cap tech stocks, in favor of Asian markets with more attractive valuations and promising growth trajectories. Stuart Rumble, Investment Director for Asia Pacific at Fidelity International, observed that shifts in global trade patterns, fiscal policy uncertainty, and currency fluctuations are prompting investors to seek returns in emerging markets and regions offering structural growth opportunities.

Research by UBS’s global equity strategy team shows that for every 10% decline in the U.S. dollar index, emerging market equities tend to gain approximately nine percentage points in average returns. As a major component of the emerging markets universe, A-shares are expected to benefit from this trend, especially in an environment of moderate RMB appreciation.

Domestically, there are also signs of improving demand. According to the National Bureau of Statistics, China’s total retail sales of consumer goods rose by 4.8% year-on-year in June 2025. JPMorgan attributes this increase to the holiday effect, the “618” shopping festival, and eased restrictions on inbound tourism. The rise of personalized, experiential, and tech-driven consumption is transforming the structure of China’s consumer market and becoming a key focus for foreign capital.

Foreign investment in the A-share market continues to grow steadily. UBS data shows that as of the end of the first quarter of 2025, foreign holdings of A-shares totaled RMB 2.97 trillion, accounting for 3.4% of the total market capitalization. In contrast, A-shares comprise approximately 17% of the MSCI China Index.

At the same time, foreign investors are re-evaluating their allocation to A-shares. Xiao Lingjun, General Manager of the Asset Management Department at Nomura Orient International Securities, commented that from a global perspective, current A-share valuations do not reflect the size of China’s economy and its role in global trade. With foreign holdings below 5%, there remains substantial room for growth. Xiao believes that with China’s economic restructuring and the continued entry of long-term capital, the A-share market holds broad long-term potential. He added that A-shares are currently in the early stages of a transition from a bear to a bull market, with attractive valuations and strong policy support laying a solid foundation for mid- to long-term investment.

This upward trend in foreign interest is not limited to A-shares. Offshore China concept stock ETFs are also experiencing net inflows, highlighting a broader resurgence of interest in Chinese assets. According to ETF.com, in the first half of 2025, the iShares MSCI China ETF (MCHI) recorded net inflows of approximately USD 160 million, while the KraneShares CSI China Internet ETF (KWEB) saw inflows of about USD 250 million. MCHI, which now has a total size nearing USD 6.4 billion, holds positions in leading firms such as Tencent Holdings, Alibaba-W, Xiaomi Group-W, and Meituan-W. KWEB, with a portfolio size of approximately USD 7.3 billion, is focused on major internet-related China concept stocks.