RIYADH: China’s economy took a massive hit in August after registering a capital outflow of $49 billion, straining the yuan and its growth prospects.
Despite an uptick in inflows, the country witnessed the largest amount of money leaving its coffers since December 2015, mainly caused by $29 billion in securities investments in August, according to Bloomberg, citing data from China’s State Administration of Foreign Exchange.
Moreover, the country saw a deficit of $16.8 billion in direct investments during the month, the steepest decline since 2016.
China has been grappling with economic challenges since mid-2022, with COVID-19 restrictions and a slowdown in the private sector posing significant barriers for investors.
Foreign ownership of Chinese sovereign bonds fell to a four-year low in August, and a record $12 billion worth of mainland shares were discarded in the same month.
The capital outflow raises concerns among authorities and further strains the already weakened yuan, which recently reached a 16-year low.
The Chinese yuan has depreciated over 5 percent this year, both in onshore and offshore markets, recording the second-worst performance in emerging Asia, following Malaysia’s currency ringgit.
The weakening currency, accelerated by quiet growth and a widening interest-rate gap with the US, poses a risk of destabilizing the financial markets.
This worsens the ongoing economic challenges faced by the country, putting Beijing at risk of falling short of its growth target of approximately 5 percent. A declining property market and falling exports compound these challenges.
Despite China’s efforts to curb the depreciation of the yuan, the trend of capital outflows appears to be difficult to reverse.
These challenges are not new, as the country faced similar scenarios in the aftermath of the 2015 currency devaluation and during the trade war with the US under the Trump administration.
Moreover, China’s consumer confidence has also been slow to recover since COVID-19 restrictions were lifted, and the country has run a perennial deficit in services trade.
The deficit worsened last month due to an increase in outbound tourism during the summer season.