Goldman Sachs On China Capital Outflow Pressures
The US bank highlights a pick up in capital outflow pressures for China in April. It expects the authorities to manage depreciation pressures via the fixing mechanism and CNH liquidity management. See below for more details.
Goldman Sachs: "In April, we saw US$50bn in net outflows via onshore outright spot transactions, and US$1bn outflows via freshly entered and canceled forward transactions. Another SAFE dataset on "cross-border RMB flows" showed outflows of US$35bn in the month, suggesting net receipt of RMB from onshore to offshore, likely on the back of Stock Connect outflows. Our preferred FX flow measure therefore suggests US$86bn net FX outflows in April, in comparison with US$39bn net FX outflows in March.
The portfolio investment channel saw net outflows after adjusting for cross-border RMB receipts. Stock Connect flows showed around US$9bn outflows, vs. US$8bn outflows in March. Foreigners kept buying RMB bonds - the bond market saw US$7bn inflows in April, vs. US$6bn in March.
Official FX reserves (released earlier in the month) fell to US$3,200.8bn in April from US$3,245.6bn in March. By our estimate, FX valuation effects would have reduced FX reserves by US$16.4bn in April, so after adjusting for FX valuation effects, FX reserves outflows were US$28.4bn in April.
The broad USD strengthened further in April, but USD/CNY spot remained relatively stable. We expect policymakers to maintain tight control to fend off depreciation expectations via a strong CNY fixing and CNH liquidity management, given the elevated capital outflow pressures."