Banking giant Goldman Sachs says that China is weathering the biggest capital flight since 2016 amid struggling equities markets.
In a report seen by the South China Morning Post (SCMP), Goldman says foreign investors sold off a net total of $3.3 billion in domestic Chinese stocks, bringing the total outflows for October to $5.1 billion.
Goldman analysts say that higher rates in the US and a depreciation of the yuan against the dollar are partially to blame.
“With ‘higher for longer’ interest rates in the US and the need for more monetary policy easing in China, the pressure for capital outflows and [yuan] depreciation persists… Policymakers appear to put more weight on confidence and stability in foreign-exchange management.”
Since hitting a bottom in January this year, the USD is up over 9% against the yuan in 2023 so far.
Goldman also reports that in September, China saw $75 billion worth of capital exit its markets, which is the largest net outflow since 2016. The outflow came following a $42 billion flight the previous month.
Earlier this month, the Chinese government took new action to prevent contagion stemming from the country’s property crisis, which was partially triggered by the collapse of Evergrande, the massive real estate developer that went bankrupt in 2022.
Authorities are reportedly preparing to help replenish capital at commercial banks and rural financial institutions, while also aiding them in disposing of bad assets and loans. Some local governments have also issued new special-purpose bonds to help smaller banks raise money.
As part of the move to stop contagion, Chinese banks are now banned from operating outside of their designated regions.
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Author: Alex Richardson
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