China Capital outflows moderated to US$59b in October

Key indicators show lighter intervention by the PBoC during the month.

Standard Chartered (SC) estimate that China’s non-FDI capital outflows moderated to about USD 59bn in October.

The research house also finds that the FX reserves reduction (excluding valuation changes) narrowed and banks’ net FX sales shrank during the month, indicating lighter intervention by the PBoC.

Moving forward it believes that capital outflows may continue amid a broader USD advance and that the authorities may use the CNY basket to anchor market expectations and manage the capital account to prevent large capital outflows.

Here's more from SC:

Our China capital flows tracker shows that monthly non-FDI capital outflows moderated to a still-sizeable c.USD 59bn in October from c.USD 62bn in September.

The trade surplus widened to USD 49bn from USD 42bn prior. This was partially offset by the services trade deficit (estimated at USD 27bn) and net foreign direct investment (FDI) outflows of USD 3bn.

Despite a surplus of USD 19bn under the current and FDI accounts, the People’s Bank of China’s (PBoC’s) FX assets declined further by an amount equivalent to USD 40bn in October from a decline of USD 51bn in September, indicating continued net FX selling by the central bank. This implies non-FDI capital outflows of USD 59bn in October.

Other indicators also show a slower pace of capital outflows in October. FX reserves dropped USD 46bn in October.

However, we estimate that, excluding valuation changes in the reserve currencies and market-value changes in the reserve asset holdings, the FX reserves reduction for transaction purposes was less than USD 20bn, indicating relatively light intervention by the PBoC during the month.

Matching this, net FX sales by banks shrank to USD 15bn from USD 28bn prior, according to the State Administration of Foreign Exchange (SAFE). The PBoC’s FX assets fell by a larger amount, equivalent to about USD 40bn, in October.