How wealthy Chinese move hundreds of billions abroad to buy assets
Capital flight remains a concern for the authorities. But experts think the government has it under control, for now
Since China abruptly depreciated its currency last August, the country’s wealthy have been trying to bypass the strict capital controls and transfer money abroad in many inventive ways, in search of better-yield investments.
But analysts say the capital flight could stabilise, if the central bank effectively increases two-way flexibility of the exchange rate and tames the expectations of a falling yuan.
As of Monday, the yuan’s official mid-point rate against the US dollar had plunged 9 per cent since August 11, 2015, when the People’s Bank of China stunned markets by lowering the daily fixing by 1.9 per cent, the largest cut ever.
The yuan has also slumped against most of its major currency rivals, down more than 10 per cent and 30 per cent respectively against the euro and the yen in the past 12 months.
Expectations of a declining yuan, combined with the gloomy economic outlook, have sparked unprecedented capital outflows.
The most recent data shows China’s FX reserves declined by US$4.1 billion in July to US$3,201 billion. Compared with the end of July in 2015, the reserves have shrank by US$450 billion.
“Although the capital outflow pressure has eased from 12 months ago, it still persists,” said Larry Hu, an analyst for Macquarie Research.