A report by the US Treasury has estimated that capital outflows from China in the 8 months of 2015 to August exceeded $500bn. The report says that the renminbi (RMB) has appreciated nearly 30% in real effective terms since June 2010.

 

The semi-annual report on international exchange rate policies says that that while "the Euro Area has emerged from recession, its growth is uneven and too soft overall, and is characterized either by pockets of quite high unemployment, as in Spain and Greece, or very large current account surpluses, as in Germany and the Netherlands.

A major concern in the Euro Area is that demand is not stronger despite the extent of monetary stimulus now in place. Boosting demand growth through increased fiscal support for infrastructure investment and greater private consumption is essential to sustaining the recovery of the euro area and peripheral countries in particular."

The report says proxies for intervention and balance of payments data indicate that China was a net seller of reserves over the course of the year through September, and that capital outflows from China currently exceed the growing surplus in China’s current account and ongoing net inflows from foreign direct investment.

Before the recent shift in exchange rate policy, the RMB had remained largely unchanged relative to the dollar, and thus had appreciated in real effective terms, along with the dollar, over the course of 2015. All told, the RMB has appreciated nearly 30% in real effective terms since June 2010.

"Heightened volatility in the Chinese stock market and investor concerns about a slowing Chinese economy have accelerated capital outflows since July, continuing a trend since the third quarter of 2014, adding to current market pressure for a weaker exchange rate. Based on Chinese balance of payments (BOP) data, Treasury estimates non-FDI capital outflows of $250bn in the first half of the year, compared with outflows of $26bn in the same period last year. Detailed BOP data available through June suggest the unwinding of carry trades previously based on relatively high expected financial returns drove such outflows. Using monthly proxies, Treasury estimates that non-FDI capital outflows in July — when uncertainty in China’s stock market intensified — reached $70-80bn. These likely reached $200bn in August following the shift in China’s exchange rate regime."

Foreign exchange reserves China, global 2015On Monday China announced an annual 6.9% growth rate for the third quarter — falling below 7% for the first time since 2009

“Overall it’s pretty disappointing,” said Klaus Baader, Société Générale CIB economist, who expects fourth-quarter growth of 6.8%. “Investment continued to slow pretty sharply despite efforts by the government to support the economy. It doesn’t seem to be sufficient.”

"Expectation of a US interest rate hike prompted volatility in commodity prices, stocks and foreign currency markets. Many countries devaluated their currencies, putting more pressure on Chinese exports, one of the three pillars of China's economic growth," said Sheng Laiyun of the National Bureau of Statistics (NBS) at a press conference, according to Xinhua, the official news agency.

CNNMoney reports that Sanford Bernstein, a US brokerage, which keeps an eye on sales of movie tickets, cars, mobile phones and Alibaba (BABA, Tech30)online transactions, says growth is weaker, but not bleak. Bernstein estimates third quarter growth was actually 4.1%.

Capital Economics says China stabilized at 4.5%.

Jamie Dimon, JPMorgan CEO said in an interview Monday on Bloomberg TV: "China has had 20 years of 10% growth uninterrupted, never before seen on this planet. They are going to have bumps in the road."

China’s debt quadruples to $28tn since 2007

Pic above: Xi Jinping, Chinese president, accompanied by his wife Peng Liyuan, arrived in London on Monday evening 19 Oct 2015, for a state visit to Britain at the invitation of Queen Elizabeth II. Photo: Xinhua