China: Capital Flight Persists Despite Gov't Measures

Andamento del mercato - 07/03/2016

Data released this morning by the People’s Bank of China underlined the continued exodus of capital after .  Although the pace of decline has eased substantially compared to the outflows of $100 billion recorded in January, this is only one component of the total capital flowing out of mainland China.

What remains unknown is the current pace of capital flight which was estimated to total as high as $1 trillion in 2015 alone.  Although capital controls have been in place for some time, circumventing said controls has become an object of interest for policymakers as they seek to keep funds from exiting the economy.  Much of the hot money has flowed into real estate, specifically in California and Canada, where this money is parked into homes which are considered a store of value.

Although policymakers at the People’s Bank of China have implemented dramatic measures to keep the economy from buckling, the strains are all too evident.  The move in the prior week to lower the banking sector’s reserve ratio requirement further to 17% led to resurgent speculation that it would be accompanied by an imminent rate cut to bolster effectiveness.

However, repeated warnings from key officials that no new rate cuts would be implemented were not enough to quell speculation with investors still confident that the next policy step is for an additional round of devaluation to keep the economy chugging along in the short-term.  Although the full scale and pace of outflows is still masked through a complex financial web, capital bleeding out has not abated and remains a persistent force constraining policymakers from acting more aggressively.  The one area to watch remains Bitcoin which is a key channel for more sophisticated investors to move capital across the globe within a short period of time.

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