Jake's View | Large net capital outflow indicates low confidence in yuan, despite IMF's SDR move

Beijing would encourage the Guangdong free-trade zone to cooperate with Hong Kong and Macau in pioneering financial reform as it sought to make the yuan a convertible currency under the capital account "in an orderly manner", Premier Li Keqiang said yesterday.

What is all this about an orderly manner? The mainland's capital account is already wide open for those with enough money to take advantage of it and there has been nothing orderly about the manner in which it happened.

I have presented the chart here before and I expect to have plenty of occasion to do it again. The mainland's latest balance of payments indicates a net outflow on the capital account of about US$600 billion over the 12 months to September.

I readily admit that this is more than the officialdom concedes but I am also sure I am closer to the truth. My figure treats errors and omissions in the balance of payments as capital flows because this is almost certainly what they are. I also say the tourist-spending figures hide a big element of capital outflow. Even the official figures, however, concede a net outflow of US$380 billion, which is the equivalent of about 3.5 per cent of gross domestic product.