A recent set of data released by the SAFE has caused market concern: China’s capital and financial project deficit reached US$91.2 billion in the fourth quarter of last year, and the current account surplus narrowed to US$61.1 billion. The capital account recorded at least the largest since 1998. Scale deficit. Coupled with the continued depreciation of the renminbi in recent times, market concerns may accelerate capital outflows.
First, we need to correct a misunderstanding. The expansion of the deficit between capital and financial projects cannot be equated with “capital flight”. The market and the media cannot look forward to the meaning of the text, and feel that the deficit is "hot money fleeing." In fact, in the past two years, China has actively accelerated capital output, Chinese companies have invested and acquired in various parts of the world, and promoted China as the largest capital exporter in one fell swoop. This capital export trend and China’s domestic operating costs have risen. The net inflow of direct investment has decreased, which has made the deficit of China's capital and financial projects obvious.
Considering that China began planning and promoting the Silk Road Fund last year, providing infrastructure funds to countries along the Belt and Road, and providing similar funds to ASEAN, the scale of China's capital output may be even larger in the future. In addition, Wanda, Fosun, Anbang, Ali and other star private enterprises and a large number of low-key private enterprises, central enterprises, overseas mergers and acquisitions and investment scale is growing, which means that the capital and financial project deficit may be larger and larger. Obviously this is not a bad thing, but a sign that China is turning to the beginning of the era of capital output.
Recently, the US dollar has strengthened, the euro has depreciated sharply, and external factors coupled with the internal economic slowdown have led to an increasing pressure on the depreciation of the RMB. Recently, the continued depreciation of the RMB and the capital outflow have put pressure on each other, which has indeed formed a short-term trend. However, the Chinese-style “capital outflow” is different. The domestic arbitrage drive is an important reason, and it is not necessarily the destructive flow of so-called international capital.
In the past few years, China’s domestic financing costs have remained high and the renminbi has appreciated slowly. This has spurred some domestic companies or individuals to borrow low-interest dollars through false trade to achieve double arbitrage of interest rates and exchange rates in China, but the inflow of these arbitrage funds Mainly through regular projects. Now, with the continued depreciation of the renminbi, the offshore RMB exchange rate (CNH) and the onshore (current CNY) renminbi exchange rate have seen a big difference, offshore is lower than the shore, which stimulates those who are eager to arbitrage. People use the renminbi to buy dollars in the territory and transfer them to the offshore market in Hong Kong to sell them. In part due to the existence of this arbitrage activity, the RMB market in the shore market has continued to fall and circulate.
However, this arbitrage activity is not a trend, but a short-term speculation. Since China has sufficient foreign exchange reserves, the central bank has the determination to maintain the stability of the renminbi. Therefore, the view that the devaluation of the renminbi has led to large-scale capital flight is not valid. In fact, such a small depreciation is within the scope of the central bank’s acceptance. The power of this market is also conducive to eliminating the pressure on other countries to demand RMB appreciation. As long as exchange rate fluctuations are controllable and acceptable, the central bank will be happy to see this. Kind of fluctuations.
However, China's foreign exchange accounted for the mode of currency issuance, which will create domestic liquidity tensions as capital continues to flow out. On February 4, the central bank suddenly announced that it will cut the RMB deposit reserve ratio of financial institutions by 0.5 percentage points from February 5. From a certain perspective, this is also a response to the impact of capital outflows, which can stabilize the economy. And participate in the game of global currency competition loose. This may confirm the trend of RMB depreciation, which may stimulate capital outflows. However, in the current international competitive depreciation environment, it may be more favorable for economic stability and growth than the hard-resistance.
