SHANGHAI: As if the yuan wasn’t already under pressure from the weak Chinese economy, a surging dollar and the prospect of higher US tariffs, the currency faces an additional downdraft: a flood of money looking to invest overseas.
China’s capital account, which tracks flows of capital in and out of the country, saw a record outflow last year as investors looked for better returns abroad.
As a result, payments made by banks on behalf of their clients for capital and financial transactions surpassed those for the current account, which mainly relates to trade, according to official data.
That’s unprecedented. An extension of that imbalance is likely to raise fears of serious capital drains, undercutting Beijing’s ability to manage the yuan and increasing the chance of a regulatory crackdown.
The fact that China’s capital and financial account flows have increased greatly “suggests a bias for depreciation, or, if the currency is unchanged, of reserve depletion,” said Philip McNicholas, an Asia sovereign strategist at Robeco Singapore.
“The challenge for the People’s Bank of China is that weak growth is making it hard to attract growth-sensitive portfolio inflows and risks around foreign business viability in China is making multinational corporations reluctant to add to, or in some cases, leave or sell, investments there,” he said.
The yuan has tumbled about 2.8% over the past three months, tracking losses by all of its Asian peers, as the dollar surged following Donald Trump’s election victory.
China’s local banks sent a net 1.33 trillion yuan of funds overseas on behalf of their clients for investments last year, a record based on Bloomberg calculations.
That total takes into account foreign investment into the country, as well as purchases of overseas securities by local investors. — Bloomberg-
