Capital exodus spurred by yuan depreciation

A massive capital outflow from China in the second quarter was caused by increasing expectations of yuan depreciation, experts and insiders told the Global Times Thursday.

The State Administration of Foreign Exchange (SAFE), the nation's foreign exchange regulator, revealed Wednesday a capital and financial account deficit of $41.2 billion for the second quarter, indicating an exodus of capital from China.

The country had seen a first-quarter surplus in financial accounts, which reached $56.1 billion in the first three months, indicating a capital inflow.

However, SAFE, which oversees the world's largest foreign reserves of over $3 trillion, said that the second-quarter financial account deficit did not indicate a massive outflow of foreign capital.

"It means net capital outflows of institutions and individuals in China and their foreign assets are increasing," said a statement issued by SAFE Wednesday.

However, experts said there had been a capital exodus from the country.

People can indeed keep their foreign capital at home and abroad, Lu Qianjin, an international finance professor at Fudan University, told the Global Times. "But as far as I am concerned, a capital exodus trend has started in the country. The situation was mainly triggered by increasing expectations of yuan depreciation," Lu noted.

Lu said that the slowdown in China's economy has fueled such expectations.

"We think the central bank may allow the yuan to depreciate a little, which could improve China's exports," Liu Dongliang, a currency analyst at China Merchants Bank, told the Global Times.

China's economic growth slowed to a three-year low of 7.6 percent in the second quarter. The world's second largest economy's manufacturing sector contracted in August, as the official purchasing managers' index for the sector fell to 49.2 percent for last month, the lowest since November last year.

Zhou Jingtong, a senior analyst at Bank of China, told the Global Times on Thursday that the clear economic slowdown has increased people's expectations of depreciation in the domestic currency.

"As a result, people would naturally exchange yuan for foreign currencies, causing an outflow in the country's financial account," said Zhou.

He believes the recent round of stimulus policies approved by the government could help boost the economy.

The National Development and Reform Commission (NDRC), the nation's top economic planner, gave a green light last week to 55 investment projects, including construction of highways, railways, ports and navigation channels.