Big capital outflows leave country

CHINA has seen almost $1 trillion in capital leave the nation since the second quarter of 2014, and according to analysts at JPMorgan Chase, the sky is the limit for outflows going forward.

The causes of these massive capital outflows, which have prompted the People’s Bank of China to tap the country’s war chest of reserves to support the currency, have grown more numerous in the second half of last year, argues a team led by managing director Nikolaos Panigirtzoglou.

Amid the broadening of sources of downward pressure on the yuan, however, a major factor that may have restrained the central bank from devaluing the currency in a big way has vanished.

“The Chinese capital outflow picture appears to have entered a new phase in the third quarter, broadening to include foreign direct investment and portfolio instruments, something that could make future capital outflows practically boundless,” JPMorgan said.

Net foreign direct investment in China rose by $7 billion (R116bn) in the third quarter, its lowest level since 2000, with gross inflows falling precipitously. Meanwhile, foreign investors divested a net $17bn worth of Chinese stocks and bonds over that same span. – Bloomberg