PBOC Data Suggest Capital Outflows Stayed Strong in September

  • Record foreign exchange sold by financial institutions
  • Outflows slowed less than previously thought: BNP Paribas

Chinese financial institutions including the central bank sold a record amount of foreign exchange in September, a sign capital outflows were more severe last month than was previously thought. The offshore yuan fell to a two-week low.

A gauge of their foreign-currency assets declined by the equivalent of 761.3 billion yuan ($120 billion), exceeding an August drop of 723.8 billion yuan, People’s Bank of China data showed Friday. China devalued its currency on Aug. 11 and concerns about further depreciation and slowing economic growth, coupled with the prospect of a U.S. interest-rate increase, are spurring outflows of funds.

"This shows although outflows probably did slow in September from August, they didn’t slow as much as previously expected," said Chen Xingdong, chief China economist at BNP Paribas SA in Beijing. "If you look at commercial banks and the central bank as a unit, in August the central bank took more of the outflows and in September commercial banks took more." 

Previous data showed the decline in the central bank’s foreign reserves moderated last month, giving rise to speculation that pressure for the yuan to weaken had eased from August. The holdings declined by $43.3 billion to $3.51 trillion, after sliding a record $93.9 billion the previous month, as the PBOC sold dollars to support China’s exchange rate.

Yuan Climbs

The yuan in Shanghai gained 0.3 percent versus the greenback in September, following an August slide of 2.6 percent that marked its steepest loss in more than two decades. It has strengthened less than 0.1 percent this month as policy makers favor stability before the currency is considered for inclusion in the International Monetary Fund’s Special Drawing Rights in November.

In Hong Kong’s offshore trading, the yuan extended declines after the PBOC data. The currency slid as much as 0.35 percent to 6.3682 per dollar, the weakest since Oct. 2. It was down about 0.3 percent prior to the announcement.

"The pace of capital outflows waned in September and the situation is likely to get even better in October, as a Fed rate hike becomes less likely and the market expects the PBOC to keep the yuan stable for the SDR review," said Ken Peng, a strategist at Citigroup Inc. in Hong Kong. "Still, capital outflows from China’s financial institutions, or private channels, were more severe than those from the official channel, indicating that private-sector expectations for depreciation were still strong in September."

— With assistance by Justina Lee, and Tian Chen

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