Chinese government efforts to stem capital flight prove partially effective, says DBS Bank

Chinese government efforts to stem capital flight proved partially effective as in December only a small amount of USD900 million left the country via Yuan payments. This is recorded as a very small fraction of November’s reading compared to a monthly average of USD25.8 billion registered last year.

Since 2016, increased attention has been paid to an exodus of funds in Yuan due to its fast rising trend. For 2016 as a whole, a total of USD 309 billion Yuan payments left the mainland. Such cross-border flow was not followed by a corresponding increase in the offshore RMB deposits and therefore was seen as speculative currency outflows, reported DBS Bank Group Research in its daily note.

The Chinese authorise deployed a series of measures in the past few months. It is reported that banks are requested to stop processing cross-border yuan payments until inflows and outflows are balanced, they added.

The DBS bank in its research note mentioned that the regulators have also placed restrictions on onshore companies’ purchases of offshore assets. If the pace of outflows accelerates again, policymakers are expected to impose more capital controls ranging from taxing currency transaction and requesting mainland exporters to sell their FX proceeds.