China’s Capital Flight Hits Highest Monthly Outflow Since 2016
In a concerning trend for Chinese markets, the pace of capital flight out of China reached its highest level since early 2016. Banking clients were responsible for sending nearly $54 billion overseas, further exacerbating the economic outlook and real estate crash that have been weighing on investors.
According to the State Administration of Foreign Exchange data cited by Bloomberg, capital outflows have been a persistent issue in 2023. In the latest development, $53.9 billion was sent overseas on behalf of banking clients, marking the largest monthly outflow since January 2016.
As a result, the Chinese yuan is facing downward pressure, trading at around 7.30 against the US dollar and nearing the 7.34 level hit in September. Despite efforts from Beijing to support the currency, both the offshore and onshore forms of the yuan have weakened.
Complicating the situation further, stimulus measures are facing challenges due to rising interest rates in the US. This has led to the widest yield spread between US and Chinese yields in over two decades, making it difficult for China to compete. US Treasuries, in particular, have experienced a historic bond sell-off, pushing their yields to the highest levels since 2007.
The concern over US rates taking a toll on global liquidity has had a significant impact on Chinese markets. The tech-focused Star 50 Index fell to its lowest point in its three-year history, while the benchmark CSI 300 Index hit its lowest level since early 2019.
Global funds have also been reducing their exposure to Chinese equities, with $1.6 billion being let go of onshore equities through Thursday. Furthermore, China’s current account and capital account both suffered declines in September, with foreign funds decreasing their holdings of Chinese sovereign bonds by $1.85 billion.
The escalating capital flight and its impact on the yuan and Chinese markets highlight the challenges the country is facing in stabilizing its economy. With ongoing concerns over the economic outlook and real estate crash, investors will be closely monitoring the situation for further developments.
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