Figure 8. Mainland Chinas Private Capital Flows 口FDI 600 口 Debt outflows 口 Debt inflows 400 s Banking outflows 区 Banking inflows Inflows 200 -200 Outflows 300 989900010203040506070809101112 Source: State Administration of Foreign Exchange(SAFE)of the People's Republic of China(PRO) C. Hong Kong Sars role in Mainland Capital Account Opening China's capital account liberalization was associated with an expansion in Hong Kong Sar's role as a financial gateway to the mainland where growth in the offshore use of the renminbi has been concentrated Bilateral capital flows between the two grew rapidly in recent years and, although comprehensive bilateral flow data are lacking, several measures of bilateral flows between China and Hong Kong SAR illustrate this role for Hong Kong SAr Hong Kong SAr's share in Mainland Chinas inward FDI rose to around 60 percent in the past few years(Figure 9). This partly reflects foreign companies increasing tendency to set up companies in Hong Kong SAR and use them as a springboard for investing in Mainland China. A significant portion of this investment was by firms in Hong Kong SAR with a mainland Chinese interest or ownership, often funded by Chinese banks foreign operations Hong Kong SAR accounted for around 50 percent of Mainland Chinas overseas direct investments(ODI)in recent years(Figure 10). Some of these investment flows were related to the surge since 2008 in merger and acquisition activities involving mainland entities listed in Hong Kong SAR. These transactions were often executed via mainland companies' subsidiaries or local offices in Hong Kong SAR. The Hong Kong Stock Exchange became the leader in global equity issuance for several years owing partly to issuance by mainland companies For portfolio investment flows, an average of 50 percent of QDII funds was allocated to Hong Kong SAR, according to estimate by y ao and wang(20 12)(Figure 11) 1212 Figure 8. Mainland China’s Private Capital Flows -400 -300 -200 -100 0 100 200 300 400 500 600 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 (US$ bn) ODI FDI Equity outflows Equity inflows Debt outflows Debt inflows Banking outflows Banking inflows Inflows Outflows Source: State Administration of Foreign Exchange (SAFE) of the People’s Republic of China (PRC). C. Hong Kong SAR’s Role in Mainland Capital Account Opening China’s capital account liberalization was associated with an expansion in Hong Kong SAR’s role as a financial gateway to the Mainland where growth in the offshore use of the renminbi has been concentrated. Bilateral capital flows between the two grew rapidly in recent years and, although comprehensive bilateral flow data are lacking, several measures of bilateral flows between China and Hong Kong SAR illustrate this role for Hong Kong SAR:  Hong Kong SAR’s share in Mainland China’s inward FDI rose to around 60 percent in the past few years (Figure 9). This partly reflects foreign companies increasing tendency to set up companies in Hong Kong SAR and use them as a springboard for investing in Mainland China. A significant portion of this investment was by firms in Hong Kong SAR with a mainland Chinese interest or ownership, often funded by Chinese banks’ foreign operations.  Hong Kong SAR accounted for around 50 percent of Mainland China’s overseas direct investments (ODI) in recent years (Figure 10). Some of these investment flows were related to the surge since 2008 in merger and acquisition activities involving mainland entities listed in Hong Kong SAR. These transactions were often executed via mainland companies’ subsidiaries or local offices in Hong Kong SAR. The Hong Kong Stock Exchange became the leader in global equity issuance for several years owing partly to issuance by mainland companies.  For portfolio investment flows, an average of 50 percent of QDII funds was allocated to Hong Kong SAR, according to estimate by Yao and Wang (2012) (Figure 11)