Investors from the Chinese mainland bought US$40.1 billion in shares through the Hong Kong stock connect trading scheme last month, cashing in on government relaxation of outflows.

The January total released by the State Administration of Foreign Exchange (Safe) on Friday for southbound investment – or buying of offshore stocks by mainland Chinese investors – did not include previous monthly figures but it is about one-tenth of the 2.13 trillion yuan (US$328 billion) of Hong Kong-bound investment reported in the six years of the scheme.

It was in line with data from the Hong Kong stock exchange that indicated a sharp rise in Hong Kong-bound purchases from HK$60.2 billion (US$7.7 billion) in December to HK$310.6 billion in January.

Chinese authorities have allowed southbound purchases since November 2014, but this investment has generally been dwarfed by northbound purchases, or investment into mainland China, thanks to stronger economic prospects there.

But this changed in the second half of last year, when a large inflow of capital, driven by China’s strong post-coronavirus recovery and greater financial opening up, lifted the yuan-US dollar exchange rate to a 30-month high. The Chinese currency rose about 6 per cent last year, and continues to strengthen.

“The two-way brisk flows will help broaden China’s forex market,” Safe deputy director Wang Chunying said.

The sharp rise in southbound stock purchases could signal more capital relaxations as China’s financial regulators grapple with massive inflows.

Foreign investors increased their holdings of Chinese bonds by US$93.6 billion last year, while in January their purchases of both bonds and stocks rose by US$41.6 billion, according to Safe.

This investment, together with China’s 9 trillion yuan coronavirus stimulus last year, weighed heavily on the capital market, raising concerns in Beijing of asset bubbles.

Beijing’s tight control of its capital account protected it from the shocks of the 2008 global financial crisis but it has kept a close eye on cross-border capital flows as greater integration with the international financial system exposes it to bigger external risks.

It has been particularly alert to capital flight. After 2015, authorities had to spend nearly a quarter of the national forex reserve after the yuan plunged, pushed down by a domestic stock rout.

With the mainland experiencing an influx in investment, an orderly outflow is generally seen as a way to help balance international payments.

To the manage those cross-border flows, Safe resumed allocating quotas for qualified domestic institutional investors, one of the limited options for Chinese to invest overseas, in September after a pause of 2½ years.

Individuals can also join the stock connect to buy Hong Kong traded stocks, but the investment threshold is much higher at 500,000 yuan.

Ye Haisheng, head of Safe’s capital account management department, said on Friday that the regulator was also looking at whether to let mainland investors buy securities and insurance overseas, within the annual individual quota of US$50,000.

Such quotas can now only be used for items such as personal travel, overseas study or work.

“We will study the impact on China’s balance of payments, yuan exchange rates and financial markets from overseas unconventional stimulus policies,” China Forex magazine quoted Ye as saying.

Such relaxation could mean a bigger appetite in China for overseas financial assets, particularly through Hong Kong channels.

Potential options include launching the southbound purchase of Hong Kong-traded bonds and expansion of Wealth Management Connect, which lets Chinese residents buy wealth management products distributed by financial institutions in Hong Kong and Macau.

The Hang Seng Index has risen 12.5 per cent since the start of the year. Its tech index, which includes many Chinese new economy giants, has risen 25.3 per cent.