China cap­i­tal out­flows rise to $1 tril­lion in 2015

The Pak Banker - - COMPANIES/BOSS -

China's cap­i­tal out­flows jumped in De­cem­ber, with the es­ti­mated 2015 to­tal reach­ing $1 tril­lion, un­der­scor­ing the scale of the bat­tle fac­ing pol­icy mak­ers try­ing to hold up the yuan amid slower eco­nomic growth and slump­ing stocks.

Out­flows in­creased to $158.7 bil­lion in De­cem­ber, the se­cond-high­est monthly out­flow of the year af­ter Septem­ber's $194.3 bil­lion, ac­cord­ing to es­ti­mates com­piled by Bloomberg In­tel­li­gence. The to­tal for the year soared more than seven times from $134.3 bil­lion in the whole of 2014 to a record for Bloomberg In­tel­li­gence data dat­ing back to 2006.

De­cem­ber's out­flows in­creased by al­most $50 bil­lion from a month ear­lier af­ter the cen­tral bank un­nerved mar­kets by say­ing it would re­fo­cus the yuan's moves against a wider bas­ket of cur­ren­cies rather than the dol­lar. In ad­di­tion to cap­i­tal ex­it­ing the econ­omy, ex­porters are hold­ing funds in dol­lars in­stead of con­vert­ing them to yuan, said Tom Or­lik, Bloomberg's chief Asia econ­o­mist in Bei­jing.

"The im­me­di­ate trig­ger for a pickup in cap­i­tal out­flows to­ward the end of the year was the Peo­ple's Bank of China's poor com­mu­ni­ca­tion over its shift in cur­rency pol­icy," said Mark Wil­liams, chief Asia econ­o­mist for Cap­i­tal Eco­nom­ics Ltd. in Lon­don, who pre­vi­ously worked on China is­sues at the U.K. Trea­sury. "Out­flows are likely to re­main strong be­cause the Peo­ple's Bank still has not been able to gen­er­ate con­fi­dence among in­vestors that it knows what it's do­ing or that it's able to achieve its pol­icy ob­jec­tives."

China's cross-bor­der cap­i­tal flow risks are con­trol­lable and the na­tions' for­eign ex­change re­serves are am­ple to help it de­fend against ex­ter­nal shocks, the State Ad­min­is­tra­tion of For­eign Ex­change said on its web­site Jan. 21.

China's for­eign ex­change re­serves are seen tum­bling $300 bil­lion this year to the $3 tril­lion level some an­a­lysts say risks un­der­min­ing con­fi­dence in the cen­tral bank's abil­ity to de­fend the cur­rency, ac­cord­ing to a Bloomberg News sur­vey. Pol­icy mak­ers have been burn­ing through re­serves to re­duce yuan volatil­ity as the cur­rency lost its sta­tus as a one-way bet on ap­pre­ci­a­tion amid the slow­est eco­nomic growth in a quar­ter cen­tury and an un­ex­pected de­val­u­a­tion in Au­gust. The stock­pile of re­serves plunged $513 bil­lion last year to $3.33 tril­lion, the first an­nual drop since 1992.

Out­flows spiked in Septem­ber and De­cem­ber af­ter cur­rency pol­icy changes caught mar­kets by sur­prise, said Wil­liams. China's yuan pol­icy has "a com­mu­ni­ca­tion is­sue" and needs "bet­ter and more com­mu­ni­ca­tion," In­ter­na­tional Mon­e­tary Fund Man­ag­ing Di­rec­tor Chris­tine La­garde said last week.

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