China’s capital outflows surged in December to send the estimated 2015 total surging to a $1 trillion, according to Bloomberg Intelligence. It’s the highest total since 2006.
December’s outflows grew to $158.7 billion, the second-highest monthly outflow of the year after September’s $194.3 billion. This means the total outflows for the year, surged to more than seven times the $134.3 billion for all of 2014.
A major reason for the outflows is the central bank’s unclear strategy about what it plans to do with the yuan. Adding to the problem, exporters are holding funds in dollars instead of converting them to yuan, said Tom Orlik, Bloomberg’s chief Asia economist in Beijing.
“The immediate trigger for a pickup in capital outflows toward the end of the year was the People’s Bank of China’s poor communication over its shift in currency policy,” Mark Williams, chief Asia economist for Capital Economics in London told Bloomberg. “Outflows are likely to remain strong because the People’s Bank still has not been able to generate confidence among investors that it knows what it’s doing or that it’s able to achieve its policy objectives.”
A Bloomberg News survey said China’s foreign exchange reserves could fall $300 billion this year to the $3 trillion level. Some analysts say such a level risks undermining confidence in the central bank’s ability to defend the currency.
Policy makers have been burning through reserves to stabilize the yuan’s value after it allowed it to be devalued in August. In 2015, reserves plunged $513 billion to $3.33 trillion, the first annual drop since 1992.
China’s yuan policy has “a communication issue” and needs “better and more communication,” International Monetary Fund Managing Director Christine Lagarde said last week at the World Economic Forum in Davos, Switzerland.