China records sharp rise in capital outflows

Figures released yesterday indicate capital outflows from the mainland have accelerated, possibly because of expectations the yuan will depreciate as economic growth decelerates.

The central bank and commercial banks sold a net 17.4 billion yuan (HK$21.3 billion) in foreign exchange last month, compared with net sales of 3.82 billion yuan in July.

However, economists say the trend may reverse after the Federal Reserve launched the third round of quantitative easing to stimulate the US economy, which may weaken the US dollar and prompt funds to flow into emerging markets such as China.

Data released by the People's Bank of China yesterday showed outstanding yuan positions at financial institutions accumulated from foreign exchange purchases fell to 25.64 trillion yuan at the end of last month from 25.658 trillion yuan a month earlier, indicating net sales rose.

"The primary reason that spurred the capital outflows was the expectation the yuan would weaken further," said Ken Peng, a senior economist at BNP Paribas.

Monthly capital outflows during the April-July period averaged about 200 billion yuan, taking into account foreign direct investment and the trade surplus, Peng said. This contrasted with the continuous inflows of foreign exchange in the past decade, when the economy soared an average of 10 per cent each year.