Capital outflows from China last year have been estimated at a mind-boggling $1 trillion, says Bloomberg Intelligence, seven times that of outflows in 2014. September witnessed the biggest outflow spike at $194.2 billion, after the central bank’s currency policy changes shocked markets.
Estimates of outflows in December are the second highest at $158.7 billion, an increase of nearly $50 billion from the previous month, ending an under-performing 2015 on an ominous note.
Here’s how Asia economist Mark Williams explained the situation:
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. 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.
Managing Director Christine Lagarde of the International Monetary Fund agrees, diagnosing the yuan policy with “a communication issue.”
Indeed, according to Bloomberg’s chief Asia economist Tom Orlik, exporters have been saving funds in dollars rather than converting to yuan.
Meanwhile, the State Administration of Foreign Exchange has insisted that foreign exchange reserves are enough to offset the thickening flow of capital across borders. In actuality, reserves dropped last year by $513 billion, to $3.33 trillion — the first annual drop since 1992.
And most economists at Bloomberg are expecting reserves to drop further this year, to $3 trillion, followed by yet more decreasing to $2.66 trillion next year.