Pace of China's capital outflow quickens in Dec

BEIJING • The onshore yuan's surging trading volume is another piece of evidence that capital is fleeing China at a faster pace.

The daily average value of transactions in Shanghai climbed to US$34 billion (S$49 billion) this month as of Monday, the highest since at least April 2014, according to data from the China Foreign Exchange Trade System. That is up 51 per cent from the first 11 months of the year.

The increase suggests quickening outflows, given that data in recent months showed banks were net sellers of the yuan, according to Mr Harrison Hu, Singapore-based chief greater China economist at Royal Bank of Scotland Group.

This month's jump in trading volume signals that sentiment has kept deteriorating since last month, when the nation's foreign-exchange reserves shrank by the most since January. 

The Chinese currency is headed for its steepest annual slump in more than two decades, and when the year turns, the authorities will be faced with a triple whammy of the renewal of citizens' US$50,000 conversion quota, prospects of further Federal Reserve interest-rate increases, and concern that US President-elect Donald Trump may slap punitive tariffs on China's exports to the world's largest economy.

"Capital outflow pressures will stay, and in the near term, we should monitor the impact upon the reset of the annual quota," said Ms Frances Cheung, Hong Kong-based head of rates strategy for Asia ex-Japan at Societe Generale. The pressures will likely ease towards the end of the first quarter as foreign flows into China's bond market quicken, she said.

This month's flurry of yuan transactions in Shanghai comes in a tough month for owners of China's financial assets.

The Shanghai Composite Index of stocks is down 4 per cent and an index of Chinese government bonds is headed for its biggest monthly decline in almost six years. The yuan has weakened 0.9 per cent this month to 6.9495 per US dollar.

Policymakers have set stronger-than-expected fixings and tightened capital controls to prevent the yuan from entering a vicious circle of sharper depreciation and faster fund exodus. The People's Bank of China has stepped up efforts to guide expectations on the exchange rate, Dr Ma Jun, chief economist at the monetary authority's research bureau, said in a statement last week.

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A version of this article appeared in the print edition of The Straits Times on December 28, 2016, with the headline 'Pace of China's capital outflow quickens in Dec'. Print Edition | Subscribe