China’s loosening of control over capital markets is being accompanied by tougher oversight of companies that previously faced little regulation.
Under President Xi Jinping, authorities appear keen to push ahead with reforms to give markets greater sway. Such measures will encourage inflows while making the economy leaner and more efficient, thus strengthening the country against a more hostile world. But greater opening also makes it more likely investors will pile into a small number of very profitable companies, mostly in the private sector. Such clustering could create imbalances in the financial system, as well as make some companies too powerful.
The conclusion for overseas funds: invest as much as you like, but beware.