China’s capital outflows set to grow in Q3 and accelerate further in 2017, analysts say
Pace of capital exodus likely to pick up in the current and coming quarters, putting further downward pressure on the yuan, analysts say
Capital outflows from China are expected to accelerate in coming months, adding further downward pressure on the value of the yuan, according to analysts who view Chinese authorities as prepared to let the currency weaken accordingly.
Capital outflows from China are expected to rise to US$113 billion in the third quarter of 2016, up from US$99 billion in the second quarter, Claudio Piron, emerging Asia foreign exchange strategist at Bank of America Merrill Lynch, said in a research note.
BAML estimates average outflows in 2017 rising to US$130 billion per quarter.
On the one hand, what BAML labelled “good” outflows, including overseas direct investment of Chinese companies and portfolio investment, are set to rise. The investment bank said that “bad” outflows, or the reduction in offshore yuan deposits by subsidiaries of Chinese banks, appear to be stabilising. Meanwhile, “ugly” outflows, namely net errors and omissions in trade and customs data, which represent illicit capital outflows, are undetectable and hard to predict.
“Capital outflows are here to stay,” Piron said. “We believe these outflows will be increasingly driven by overseas investment and liberalisation of portfolio investment.”