While China has reasons to maintain capital controls, the recent crackdown on three Hong Kong brokerages is not meant to discourage mainland outbound investment
It is merely an attempt to discourage mainland investors from illegal channels that violate China’s capital controls. This is evidenced by the fact that the investors were not penalised and instead given two years to unwind their positions.
While the offshore yuan is essentially fully convertible into all other major currencies in Hong Kong, control remains on certain capital flow items.
Moreover, over time, the yuan has been holding steady against the US dollar, and is widely expected to appreciate in the long run. What then is the purpose of this form of capital control?