China Inc’s US$7.8bil of dividend payouts to stress yuan

BEIJING: The yuan’s rebound may be undermined by a seasonal hunt for dollars as Chinese companies prepare to pay dividends to shareholders overseas.

Demand for the greenback and other currencies will peak at US$7.8bil in July, a substantial sum considering that local lenders settled an average of US$11.8bil in foreign-exchange for clients in the first five months of 2017. China’s currency reserves have shrunk every July in the last three years, with former regulator Guan Tao saying last week that demand for foreign-exchange surges in this period. China’s exchange rate has turned more volatile in the past two months, climbing the most in more than a year in May and then declin- ing in June before suspected central bank intervention spurred a rally.

Goldman Sachs Group Inc warned capital outflows have picked up, while recent data suggest the economy is showing signs of slowing as an official deleveraging drive crimps spending. “The need for dividend payouts will pressure the yuan and may pressure a recent increase in China’s foreign reserves,” said Xia Le, a Hong Kongbased economist at Banco Bilbao Vizcaya Argentaria SA. “The yuan’s advance in the past few days is not sustainable - short-term factors such as dividend payments and long-term ones like capital outflows will work together to push the currency weaker in the coming months.”—