CNN: Money has been leaving China at a record rate. Beijing is battling to stem the tide

Money was leaving the country at a record clip earlier this year through unauthorized channels, according to analysts. That’s bad news for China, which needs to keep financial reserves high to maintain confidence in its markets.

The threat of fleeing capital stems from concerns about the country’s economy, which has been hurt by cooling domestic demand and a prolonged trade war with the United States.
The People’s Bank of China also allowed the yuan to weaken, a way to help the country to counter the impact of higher US tariffs on its exports. Since the trade war began last year, the currency has depreciated by around 12% against the US dollar.
A weaker currency, though, raises the risk that people will try to move money out of the country, which in turn threatens to drive the yuan’s value even lower.
The Chinese government has been able to stop some money from leaving. About $74 billion left China through regulated channels in the first half of this year — the smallest amount in a decade, wrote Gene Ma, head of China research for the Institute of International Finance, in an October report.
Even so, a record amount of funds have left China through “unrecorded transactions” during that time, he said. The Washington-based trade group estimates that $131 billion left China in the first six months of 2019 — the most recent data available — through “hidden capital outflows.” (People can move money through such means, for example, by asking friends and family to pool the annual limit on foreign currency they are allowed to withdraw from Chinese banks, or by claiming to make investments overseas that don’t really exist.)
China has good reason to keep its money in the country. The last time China experienced this kind of capital flight was in 2015 and 2016, when the economy faltered and the People’s Bank of China suddenly devalued the yuan, roiling global financial markets.
On average, the amount of money leaving China was equivalent to 6% of the country’s GDP in each of those two years, according to an estimate by the Chinese Academy of Social Sciences, a government think tank. In total, China lost $1.28 trillion, and it was forced to tap into its foreign exchange reserves to prevent its currency from rapidly depreciating even further.
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