Capital outflows from China fell by more than half in 2017

HONG KONG – The Natixis China Capital Flow Tracker indicates that capital outflows from China in Q4 2017 stabilisd at US$81 billion. “The overall capital outflow remains relatively small, and the part which is denominated in RMB is also steady at 20%,” Natixis says.

“On an annual basis, total capital outflows from China amounted to US$408 billion in 2017, halving the total amount of 2016 (-54% from US$884 billion). By currency, 21% of the outflows were denominated in the RMB, falling from around one-third in 2016. A major reason was the decline of RMB settlements to total trade in goods from as high as 27% in January 2016 to 11% at end-2017.

Natixis said the much weaker-than-expected dollar had increased the strength of the RMB in line with other international currencies. “The RMB’s rally against the dollar has created the incentive to hold assets denominated in the yuan, which could help stemming off capital outflows.

“Future pressure could come from the widened yield differentials with the US$, which may only increase with FED monetary policy normalisation. We expect capital outflows condition in 2018 to remain stable as the scrutiny measures on cross-border capital movement are certainly working, and the market appears to accept a higher volatility in the RMB.  www.natixis.com (ATI).