A huge amount of capital has been pouring out of China’s financial markets for months now, as the Chinese yuan continues to fall in value. And much of that money doesn’t seem to leave the country in a legal way.
In the first six months of 2022, China saw $ 101 billion in equity, bond and direct investment capital flowing away, according to Reuters news agency. But more than $ 45 billion of that has been labeled by China as “wrong and/or negligent”, which probably indicates the diversion of money through illegal or semi-legal channels.
The exodus has been triggered by the falling Chinese yuan, which has so far fallen eleven percent against the US dollar. This makes Chinese investments less valuable to foreign investors if they convert them into dollars.
Instead of raising interest rates, as central banks in the US and Europe are doing, China continues to lower interest rates in the hope of turning the tide. And that while the country is also facing a significant dip in the housing market.
Fortunately for China, the trade balance remains positive so far, as the value of exports continues to exceed imports. But there are signs on the horizon that suggest investors are looking for ways to get their money out of China and bypass capital controls.
The Bond Connect, a marketplace that connects mainland China to the more open Hong Kong market and other global financial markets, saw an outflow of $ 42 billion in August. To give an idea of how much this is: in March of this year there was a net outflow of capital of “only” 2.2 billion dollars.
In addition, the number of so-called family offices in Singapore has increased significantly. These are private wealth managers who manage the private wealth of very wealthy families. Singapore is currently a top destination for wealthy Chinese to stash their wealth.