StanChart: Money Keeps Coming Out of China

(Bloomberg) -- Another month, another bout of capital flight from China.

A strong greenback and some hawkish comments by Federal Reserve officials last month drove money out of the world's second-biggest economy in August, according to new estimates published on Thursday by analysts at Standard Chartered Plc. Some $51 billion worth of non-foreign direct investment (FDI) capital flowed out of the country last month, almost unchanged from July's $50 billion, they said.

Capital outflows have placed downward pressures on the yuan, and forced authorities to further replenish liquidity through quantitative tools, but at the risk of fueling bubbles in the property market. Further capital outflows, combined with strengthening expectations of a Fed rate hike this year, would intensify depreciation pressures on the currency, the Institute for International Finance, a bankers' lobby group, said in a report last week. They've calculated net outflows at $41 billion in August, the highest level since January at $104 billion. 

Similarly, StanChart analysts argued that the People's Bank of China "appears to have increased intervention in August" to keep the exchange rate close to 6.7 yuan per U.S. dollar and a new currency index above 94, where it's currently hovering.

Meanwhile, the PBOC's yuan positions — which reflect the amount of foreign currency held on its balance sheet — fell to the lowest since 2011 in August, in a further sign that it sold dollars to support the yuan. 

"Looking ahead, capital outflows will likely sustain in September," StanChart analysts Shuang Ding and Lan Shen said. "China’s capital outflows appear to have been highly correlated with market expectations of Fed rate hikes and U.S. dollar strength/weakness."

To contact the author of this story: Narae Kim in Hong Kong at nkim132@bloomberg.net.

To contact the editor responsible for this story: Tracy Alloway at talloway@bloomberg.net, Sid Verma