Yuan Outflows Surge to Record as Currency Sinks to Six-Year Low

(Bloomberg) -- China’s outbound yuan payments surged to a record in September, indicating greater pressures on a currency that has weakened to a six-year low in both onshore and overseas markets.

A net $44.7 billion worth of yuan payments left the nation last month, according to data posted on the State Administration of Foreign Exchange’s website Friday. That’s the most since the government started releasing the figures in 2010, and compares with August’s outflow of $27.7 billion. Goldman Sachs Group Inc. has warned such large cross-border moves can’t be explained by market-driven factors and need to be taken into account when measuring currency outflows.

The yuan has come under increased pressure of late, with some analysts speculating that the central bank has reduced support after the currency entered the International Monetary Fund’s Special Drawings Rights on Oct. 1. Renewed strength in the dollar has added to the stress, with the offshore yuan trading near a record low and the onshore currency declining in all but one session this month.

"The rising yuan outflows show that depreciation concerns have re-emerged because of the worry that China will allow higher volatility after SDR inclusion, which is actually happening now," said Tommy Xie, an economist at Oversea-Chinese Banking Corp. in Singapore, adding that he expects the yuan to reach 6.8 a dollar by the end of this year.

The SAFE data released Friday also show that Chinese banks sold a net 179.3 billion yuan ($26.5 billion) of foreign exchange for clients last month. That’s the highest since March. A senior official at the regulator said in a group interview Friday that SAFE hasn’t seen panic purchase of foreign currencies. Yuan demand from foreign financial institutions is expected to rise steadily after SDR inclusion, according to the official, who asked not to be identified.

Goldman Sachs started including yuan funds in its analysis of outflows in July, after noting that cross-border movement of the currency masked actual pressures. The bank estimates that 56 percent and 87 percent of outflows took place through the offshore yuan market in July and August, respectively. The yuan was last trading at 6.7615 a dollar, weaker than the year-end median estimate in a Bloomberg survey.

To contact Bloomberg News staff for this story: Tian Chen in Beijing at tchen259@bloomberg.net. To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Robin Ganguly, Sarah McDonald

With assistance from Tian Chen