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Zhou Xin

China’s central bank has defended the removal of sensitive data from a regular financial report used by the market to assess the flow of capital in and out of the country.
The People’s Bank of China said in a statement that the figures were no longer published as they were misleading and not an accurate reflection of capital flows.
The removal of the data comes as huge amounts of cash is flowing out of China as the nation’s economy slows and its currency weakens. China’s foreign exchange reserves fell by a record US$108 billion in December and US$99.4 billion in January.
The absence of the regular figures in the report was first reported by the South China Morning Post last week.
READ MORE: Sensitive financial data ‘missing’ from central bank report on capital flowing out of China’s slowing economy
Analysts had complained that sudden lack of clear information made it hard for markets to draw a clear picture of the financial positions in China’s banking system.
Figures on the “position for forex purchase” for all financial institutions, including the central bank, were regularly published in the PBOC’s monthly report on the “Sources and Uses of Credit Funds of Financial Institutions”. The December reading in yuan was 26.6 trillion yuan.
But the data was missing in the central bank’s latest report. The central bank did publish figures for its own purchases of foreign exchange.
A central bank statement issued before the start of a G20 finance ministers and central bank leaders meeting in Shanghai said the figures on “commercial banks foreign exchange transactions do not necessarily affect the central bank’s foreign exchange position, nor necessarily reflect capital flows”.
The data has “little resemblance to its original meaning and cannot reflect the real condition of capital flows”, the statement said.
The indicator was useful to measure capital flows when almost all foreign exchange at commercial banks was purchased in yuan, but particularly after China joined the World Trade Organisation in 2001 the correlation between foreign exchange and yuan positions at commercial banks was no longer clear, the central bank said.
The data removed from the report used to be closely monitored by analysts and the media as a guide to capital flows in and out of China.
Chen Xingdong, the chief economist at BNP Paribas in Beijing, said: “If China’s capital flows were not so closely watched, the tweak may not stir debate, but as China’s capital flow situation is such a hot issue the central bank’s adjustment is put under the spotlight. China’s central bank has to improve its communications” with the market, he said.
They are constantly redefining key data to mean different things, most of the time without telling anyone…you never know if you are making the correct comparison
Christopher Balding, associate professor at Peking University HSBC Business School
The figures were, however, losing their importance as China improves the release of other data, including official foreign exchange reserves, said Chen. China started publishing data on its reserves on a monthly basis last year as part of efforts to improve transparency in the release of official financial figures.
Christopher Balding, an associate professor at Peking University HSBC Business School, said the change in published data was relatively small, but still made it more complicated to track China’s capital flows.
“Rather than censoring or redacting, it is better to say obfuscating or making [it] more difficult to track,” said Balding.
It showed the central bank was unaware “how sceptical people are of these types of surprises and Chinese data”, he said.
The problems with central bank data were similar to figures released by other Chinese government agencies, according to Balding. “They are constantly redefining key data to mean different things, most of the time without telling anyone…you never know if you are making the correct comparison.”
Chen at BNP Paribas said China’s recent change in the weighting of the basket of goods in the consumer price index was another example of inconsistent official data.
“They just changed it without any warning,” said Chen. “China still hasn’t fully realised the importance of its data and economic policies” for a world audience.
Louis Kuijs, chief Asia economist at Oxford Economics in Hong Kong, wrote in a note that the unannounced change in data was “another instance in which China’s authorities create unnecessary anxiety and speculation by not communicating about issues that global financial markets attach great importance to”.
China, the world’s second-largest economy with increasing economic and financial clout around the world, was criticised last month by the IMF’s managing director Christine Lagarde for not clearly explaining its yuan exchange rate policy.
READ MORE: China’s foreign exchange reserves likely to record another massive fall in January, analysts predict
Central bank covernor Zhou Xiaochuan gave a press conference on Friday in Shanghai ahead of the G20 meeting, which appeared largely aimed at soothing concerns about China’s slowing economy and exchange rate policy.
He also pledged to improve communication with the markets over central bank policy.
“The spillover effects of major economies’ monetary policies have become a focus,” he said. “Although it’s the policy of your own country, it has an impact on capital flows and results in arbitrage trades. Every country’s monetary policy is set according to one’s own economic conditions, but we should keep each other informed and strengthen communication.”


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China’s central bank defends halting publication of sensitive financial data as record amounts of capital flow out country

China's central bank governor Zhou Xiaochuan has pledged to improve communication with the markets over central bank policy. Photo: Reuters

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