Record capital outflow as Chinese corporates de-leverage from US dollar

HONG KONG - China registered its largest quarterly capital outflow of recent history in Q1 2015, coinciding with the changing behaviour of Chinese corporates in the FX market in the past year. Chinese corporates have become net USD buyers after many years of being net USD sellers.

ANZ Bank says the de-leveraging in China’s trade financing activities is an important factor behind the change in corporate behaviour, and that, looking ahead, China will continue to face the pressure of capital outflow as corporates have to reduce their reliance on the USD financing.

According to the data compiled by the State Foreign Exchange Authority (SAFE), China saw a capital and financial account deficit of USD159.1bn (including net errors and omissions).

ANZ says that capital outflow would normally add depreciation pressure on the RMB. However, the PBoC has stepped in to intervene in the FX market to maintain stability for the RMB. This is reflected in China’s declining foreign reserves of USD80.2 billion in Q1. www.live.anz.com (ATI).