China's $175b out­flow wasn't in­vestor flight: BIS

The Pak Banker - - COMPANIES/BOSS -

Per­sis­tent cap­i­tal out­flows from China since mid-2014 were prob­a­bly driven more by lo­cal com­pa­nies pay­ing down their dol­lar-de­nom­i­nated debt -- in an­tic­i­pa­tion of a stronger U.S. cur­rency -- than in­vestors ditch­ing as­sets, ac­cord­ing to the Bank for In­ter­na­tional Set­tle­ments.

The out­pour­ing of China's cur­rency "led to two dif­fer­ent nar­ra­tives," re­searchers for the Switzer­land-based in­sti­tu­tion said in a re­port Sun­day. "One tells a story of in­vestors sell­ing main­land as­sets en masse; the other of Chi­nese firms pay­ing down their dol­lar debt. Our anal­y­sis fa­vors the se­cond view, but also points to what both nar­ra­tives miss -- the shrink­age of off­shore ren­minbi de­posits."

The BIS, which warned in De­cem­ber that emerg­ing-mar­ket na­tions may be bor­row­ing too much too quickly, ex­am­ined a record $175 bil­lion net de­cline in cross-bor­der cap­i­tal to China in the July-Septem­ber pe­riod of 2015. Of that, the study showed $12 bil­lion of this was of­fi­cial re­serves out­flows, and the re­main­der was pri­vate out­flows.

Al­most three quar­ters of the $163 bil­lion of non-re­serve out­flows was com­prised of fac­tors in­clud­ing a re­duc­tion in yuan de­posits, which was counted as $80 bil­lion in cap­i­tal leav­ing the coun­try, as well as lo­cal Chi­nese com­pa­nies di­rectly re­pay­ing $34 bil­lion in for­eign-cur­rency debt to off­shore banks and $7 bil­lion to lo­cal banks. The as­ser­tions by the 85-year-old in­stitu- tion, which co­or­di­nates the big­gest cen­tral banks, sheds some light on China's eco­nomic fragility, which has riv­eted in­vestors ever since the $5 tril­lion stock mar­ket crash last sum­mer.

China's for­eign-ex­change stock­pile fell by $28.6 bil­lion to $3.2 tril­lion in Fe­bru­ary, de­clin­ing for 16 of the past 18 months, the Peo­ple's Bank of China said in a state­ment Mon­day. The drop was the small­est since re­serves in­creased in Oc­to­ber.

Premier Li Ke­qiang an­nounced a 6.5 per­cent to 7 per­cent ex­pan­sion goal Satur­day, down from an ob­jec­tive of about 7 per­cent last year and the first range of­fered since 1995. To reach the new tar­get, the govern­ment will per­mit a record deficit and has raised its money-sup­ply ex­pan­sion tar­get.

As the slow­down in Asia's largest econ­omy be­came more ev­i­dent, it has roiled mar­kets world­wide. China's credit-rat­ing out­look this month was low­ered to neg­a­tive from sta­ble at Moody's In­vestors Ser­vice, which high­lighted the coun­try's surg­ing debt bur­den and ques­tioned the govern­ment's abil­ity to en­act re­forms.

The coun­try's to­tal debt-to-GDP ra­tio swelled to 247 per­cent last year from 166 per­cent in 2007, pro­pelled by a lend­ing binge in the af­ter­math of the global fi­nan­cial cri­sis. Par­tial data sug­gested out­flows from China con­tin­ued in the fourth quar­ter of 2015. While the re­duc­tion of off­shore yuan de­posits slowed dur­ing the pe­riod, re­pay­ments of for­eign-cur­rency debt by com­pa­nies ac­cel­er­ated, the BIS said.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.