China’s capital outflows widen, but US trade war currency deal could ease pressures

Wealth has continued to leave China despite strict government controls, according to estimates from analysts, as trade talks that could help stabilise the yuan exchange rate against the US dollar and ease capital outflow pressures continue between Beijing and Washington.

Officially, the State Administration of Foreign Exchange (Safe), China’s foreign exchange regulator, has maintained that cross-border capital flows were stable between January and September.

French bank Natixis estimated that capital outflows from China in September totalled US$89 billion compared to near zero in January, while Morgan Stanley forecast cross-border movements shifted from a net inflow of US$35.8 billion in January to US$10.1 billion of outflows in September.

The wide range is due to a lack of transparency in Chinese financial data, said Michael Every, senior strategist at Rabobank.

“There is no timely, detailed data on what every single bank is doing, what the central bank is doing, or even on how to classify what movement you see on the balance of payments. For example, in the balance of payments, you can estimate that a lot of the services deficit that China is running, that means there may be capital flight,” said Every, referring to China’s growing deficit in services, which also covers spending or transactions from Chinese individuals abroad when they exchange yuan into other currencies.

Many analysts often assess “hidden” cross-border flows by examining the net errors and omissions category in China’s balance of payments data. The purpose of this category is to ensure that the balance of payments – the value of all economic transactions between a country and the rest of the world – actually balances, with payment inflows equalling outflows.