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China’s Record Capital Outflows Add Pressure To The Yuan

Writer's picture: By The Financial DistrictBy The Financial District

China’s yuan is facing mounting pressure from a record-breaking surge in capital outflows, adding to challenges posed by a slowing economy, a strong dollar, and the threat of increased U.S. tariffs, Bloomberg News reported.


Earlier this month, the yuan reached its weakest level since September 2023.



Official data shows that China’s capital account, which tracks capital flows into and out of the country, experienced unprecedented outflows last year as investors sought better returns abroad.


For the first time, payments by banks for capital and financial transactions surpassed those for the current account, which primarily reflects trade activities.



This imbalance raises concerns about capital drains, jeopardizing Beijing's ability to manage the yuan and increasing the likelihood of regulatory crackdowns.


“The significant capital and financial account outflows suggest a bias for depreciation or reserve depletion if the currency remains stable,” said Philip McNicholas, Asia sovereign strategist at Robeco Singapore.



He noted that weak economic growth and risks to foreign business viability in China make it challenging to attract growth-sensitive portfolio inflows.


The yuan has declined about 2.8% in the past three months, alongside other Asian currencies, as the dollar strengthened after Donald Trump’s November 5 election victory. Earlier this month, the yuan reached its weakest level since September 2023.




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