Chinese Mainland Banks Recorded High Sales in Accelerated Capital Outflow
An accelerated capital outflow for the past year has resulted in a record high net sales for $465 billion in foreign exchange coming from banks in the Chinese mainland. According to the State Administration of Foreign Exchange (SAFE) that China’s top currency trade regulator that the volume of the capital outflow was brought on by the US Federal Reserve raising interest rates. SAFE said that the outflow is manageable and cannot be used to threaten the overall health of the financial system.
Last December, mainland banks reported sales of $89 billion in foreign exchange, thus showing the third largest deficit or the proportion of sales to purchases of foreign currency being recorded. This in contrast that shows a surplus of $125 billion in 2014 and $270 billion in 2013 in large capital inflows. Wang Chunying a spokesperson for SAFE said that the Fed’s increase in the interst rate accelerated capital outflows from China and other emerging economies, but they are better prepared that the emerging countries to resist external shocks. But according to economists that they should expect the capital outflows to continue in 2016 since there are no signs of a reduced downward pressure on economic growth after the Gross Domestic Product has hit a 25 year low of 6.9 percent and the renminbi will further depreciate against the US dollar.
A Oxford Econimics economist Louis Kujis said, the commercial venture with Oxford University’ business college has predicted that the renminbi will weaken further by 3.5 percent to 6.8 yuan per US dollar by the third quarter of this year. capital outflows will continue to exert downward pressure on the currency. Together with the dramatic capital outflows, Chinese foreign exchange reserves sharply decreased by $512 billion last year or to $3.33 trillion but still remains the world’s largest foreign reserves.
According to SAFE, $253 of the reduction in the reserves was from Chinese non banking enterprises and individuals that came from direct overseas investment, overseas equity investment that are under the Qualified Domestic Institutional Investor scheme, outbound tourism, repayment of foreign debt and consumption. The central bank’s sale of foreign exchange reserve is sufficient and strong enough to resist shocks from overseas. Another economic professor also said tht at least $3 trillion foreign exchange reserves in China is required to prevent foreign debt default risk.