Chinese capital outflow resumes

Courtesy of Also Sprach Analyst.

People’s Bank of China has published the detailed tables for monetary statistics, which contain (as usual) the numbers for working out a rough estimate for capital flow.

To my surprise, the latest numbers suggest that money outflow continued in October, and it is almost back to the rate we saw in summer despite improvement in September. In other words, the reduction of outflow for September turns out to be a blip.

The position in forex purchases increased by RMB22 billion in October. The trade surplus for October was about US$32 billion, which translates into about RMB200 billion. As a result, the money outflow is estimated to be at RMB178.86 billion. Since October last year, money outflow is recorded by this measure for 11 out of 13 months:

This comes as a surprise in some ways, while somewhat expected in another way, and this comes down to how one interprets the recent strength of Chinese yuan. I once speculated that the strength of yuan may reflect inflow returning to China. The improvement for September’s data seems to point in such direction. From another angle, however, we have also seen that the flow pattern seems to have undergone some change which might be structural or relatively permanent. If this is true, it is probably very unlikely to see any improvements in money flow (and thus liquidity), and the recent strength of yuan, whatever the true reason is, will not last long.