China faces record capital outflow in Nov. ’24

China’s capital markets experienced a record outflow of $45.7 billion in November, based on official data monitoring cross-border payments, following Donald Trump’s victory in the US presidential election which disrupted global portfolio flows.

China’s foreign exchange regulator reported a record monthly deficit in cross-border portfolio investment transactions, with receipts at $188.9 billion, and payments at $234.6 billion.

China’s stock market rally, fuelled by policy measures, is losing momentum as the yuan weakens against the dollar due to tariff threats from Trump.

The deficit increased significantly from $25.8 billion in October, indicating a decline in investor confidence.

Despite Beijing’s efforts to boost the economy with various policies since late September, the property crisis, low consumption, and ongoing deflation continue to weigh on the economy.

“Whether the recovery momentum can be sustained into Q1 2025 depends on the speed and magnitude of implementation of the stimulus mapped out at the CEWC, as well as the timing of the potential US tariffs,” BNP Paribas said in a note to clients.

At the recent Central Economic Work Conference (CEWC), China’s leadership committed to raising the budget deficit, issuing more debt, and easing monetary policy.

The portfolio data from the State Administration of Foreign Exchange (SAFE) aligns with other Chinese capital statistics indicating a similar trend.

China’s central bank reported that foreign institutions reduced their holdings in Chinese onshore bonds for the third consecutive month in November.

The Institute of International Finance (IIF) also noted outflows in both China’s bond and stock markets during the same period.

The US dollar’s rise after Trump’s win influenced portfolio flows in emerging markets like China, according to the IIF.

Goldman Sachs reported a significant increase in China’s foreign exchange outflows to $39 billion in November, up from $5 billion in October.

“The sizeable FX outflows were mainly from cross-border RMB outflows, likely due to RMB outflows via portfolio investment channel,” Goldman said in a note to clients.

Attribution: Reuters

Subediting: M. S. Salama