China's True FX Outflows Since August 2015 Are $1.1 Trillion, Double The Official Number

Tyler Durden's picture

Two months ago, when looking at an alternative measure of Chinese capital outflows using SAFE data, Goldman found that contrary to official PBOC reserve data, "China's Capital Outflows Are Soaring Again", having hit $78 billion in September.

Over the weekend, and following the latest PBOC data which revealed an outflow of $56 billion in November (which was only $34 billion when FX adjusted), Goldman repeated its FX flow calculation using SAFE data, and found the China continues to mask the full extent of its outflows, which in November spiked to $69 billion, and that "since June, this data has continued to suggest significantly larger FX sales by the PBOC than is implied by FX reserve data", once again suggesting that China is eager to mask the true extent of reserve outflows, perhaps in an attempt to not precipitate the feedback loop of even further panicked selling of Yuan and even more outflows, and thus, even more reserve depletion.

According to Goldman's MK Tang, money has been leaving in yuan payments for 14 consecutive months, while the central bank’s yuan positions have slumped the most since January. The situation could get worse, said Banny Lam, head of research at CEB International Investment Ltd, cited by Bloomberg.

“Capital outflows and yuan depreciation will continue or even worsen by the end of this year and the first quarter of 2017, as investors are getting increasingly concerned about a stronger dollar and China’s economic conditions," said Hong Kong-based Lam. "The yuan will reach 7 very soon. Policy makers will keep tight capital control in the near term but will continue to internationalize the currency in the long term."

Back to Goldman's analysis, which demonstrates just how serious China's ongoing FX outflow problem is, an oddity considering the market's rather oblivious shrugging at an event which last year sent the S&P500 just shy of a correction heading into the new year:

* * *

SAFE data suggest FX outflow picked up in November to US$69bn

Bottom line:

Our preferred gauge of FX flow (based on SAFE data) shows that FX outflows rose to US$69bn in November (from US$40bn in October). Separately, data on “PBOC’s FX position” released two days earlier suggests FX sales by the central bank at $56bn in November (while headline FX reserves dropped by a smaller amount of $34bn, after adjusting for our estimate of the currency valuation effect).

Main points:

As in the last several months, we focus on two separate sets of SAFE data to gauge the underlying FX flow situation:

  • According to the SAFE dataset on “onshore FX settlement”, net FX demand by non-banks onshore in November was US$35.6bn (vs. US$11.4bn in October). This is composed of US$25.6bn via net outright spot transactions, and US$10.1bn via net freshly-entered forward transactions.
  • Another SAFE dataset on “cross-border RMB flows” shows that net flow of RMB from onshore to offshore was US$33.6bn (vs. $29.0bn in October). We incorporate this data in our measure of net FX flow, for reasons we have discussed previously (see here).

Our preferred gauge of underlying flow therefore suggests a total net FX outflow of US$69.2bn in November (US$35.6bn from net FX demand onshore plus US$33.6bn in FX outflow routed through the CNH market). This is an acceleration from the recent pace of around $50bn/month since June. Exhibit 1 shows our FX flow measure.

Exhibit 1: FX outflow picked up to US$69bn in November

The FX outflow indicated by our measure includes FX sales by both the PBOC and other Chinese financial institutions. To assess sales by the PBOC alone, two different data sets can be used. One is the widely-followed headline FX reserves, which fell US$34bn, after adjusting for our estimate of the currency valuation effect (but before adjusting for the portfolio effect due to the large global bond selloff in Nov). But valuation effects are highly uncertain and our estimates on those can be noisy, hence we rely on another dataset called “PBOC’s FX position” (which shows the amount of PBOC’s FX assets at book value, out on Dec 14) as a cross-check on PBOC’s FX sales net of valuation effects.  

According to that, PBOC sold US$56bn in FX in November. Since June, this data has continued to suggest significantly larger FX sales by the PBOC than is implied by FX reserve data (the gap is about $25bn/month on average in the last several months). Besides through the spot position, the PBOC might also change its FX position through forwards--the PBOC’s officially reported forward book for Nov will be released on Dec 30.

Cumulatively from August 2015 through November, FX outflow according to our measure totaled roughly US$1100bn, while implied FX sales suggested by PBOC’s FX position (headline reserves after adjusted for currency valuation effect) were approximately US$630bn (US$540bn). The share of PBOC sales in our measure of total FX outflow (including sales by PBOC and other Chinese financial institutions) has risen to about 75% on average since July from about 50% in the first half of the year.


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NoDebt's picture

" which demonstrates just how serious China's ongoing FX outflow problem is, an oddity considering the market's rather oblivious shrugging at an event which last year sent the S&P500 just shy of a correction heading into the new year"

Judging by the lack of posts in this thread so far I'd say we continue to shrug at this.  I don't know why because, as Joe Biden said, "this is a big fucking deal".  Probably one of the biggest macro issues I'm keeping an eye on right now.  But whatever, I'm sure it will be fine.


SimplePrinciple's picture

Maybe it’s not so much shrugging as things not quite making sense.  China is massively selling its FX reserves, yet the yuan depreciates.  In a ceteris paribus world, the yuan would appreciate.  So what gives, and also what fraction of those FX outflows are, in fact, dollars?  I expect China continues trying to sneak out the dollar door into real stuff, you know, like heavy shiny bars of it, with a side of price manipulation to keep it cheap.

fattail's picture

The lack of posts reflects the complexity of the subject and the lack of politics in the headline.  The simpletons that have showed up on ZH in the last year are updating their facebook status to religous nut. 

buzzsaw99's picture

the real question is how big would outflows be if they opened the gates? this was going to be the world reserve currency and yet even their own citizens detest it. tell me another bedtime story daddy.

truthalwayswinsout's picture

I have seen this before. Remember Japan, how they were going to take over the world and own everything. China is in the same boat but worse because just about everyone in China is in business for themselves.

This is all the rats leaving a sinking ship before they get the trial, firing squad and invoice for the bullet.

Or in a brighter world, the 1000's of riots that occur every month in China will morph into a revolution and remove the corrupt communist government so it can be replaced with a corrupt socialist elected government.

_ConanTheLibertarian_'s picture

Where is all this FX going?

buzzsaw99's picture

thousand dollar per square foot shit shacks in vancouver, casino chips in macau, bamboo rafts in indonesia, kangaroo futures in australia...

Scrubbing Bubblez's picture
Scrubbing Bubblez (not verified) _ConanTheLibertarian_ Dec 19, 2016 8:11 AM

Ask the (((Satanic Tribe!)))

tarabel's picture



Is that the new (((secret nazi handshake of the month))) you're using there?

Who is the final authority on when the change is made and what sort of change it is to be?

Is there some sort of mailing list that sends it round, or do you guys simply work on the principle of "monkey see, monkey do"?

I mean, one day it doesn't exist and the next it is ubiquitous in the ranks of those who believe that the circumstances of your birth rule your entire existence forever.

Then suddenly it is gone and replaced by some new arcane secret-society-style insider reference, just like the tide coming in and out.

fattail's picture

West coast real estate and the US stock market.  Finally, somebody else to hold the bag.

bahaar's picture

Companies and properties in the West are being bought.

Iconoclast's picture

So what's the end game? China doesn't want to see the USA collapse, pwned yes, but it's that already. Anyone get the feeling that another China crisis is overdue?

Just Another Vietnam Vet's picture

SHERIFF JOE ARPAIO gets my vote to run a new FEDERAL PRISON only for the 800,xxx CRIMINAL ILLEGALS.  

Let it Go's picture

The Chinese Academy of Social Sciences has forecast China's economic growth will further slow in 2017 to 6.5 percent, this would be the slowest pace in more than 25 years. The fact is many of us with an eye on China argue this number is still far too high.

A great capital unwinding is continuing as money that has flowed into China for decades attempts to leave the country and taking with it much of the wealth it has produced. These massive capital outflows are distorting both currencies and economies throughout the world. More thoughts on this issue in the article below.

fattail's picture

China is collapsing because of the endemic fraud and 20 year policy of pulling aggregate demand forward.  They don't need any more ghost cities or steel mills, so they are dumping steel on the world market and trying to maintain some stability in China.  Good thing they have complete control of the media or the revolution and riots would be on the nightly news and they wouldn't be worried so much about posturing or building islands in the ocean.  The tipping point is coming and the market will be suprised at the rot in the economic super power. 


reader2010's picture

When all else fail. war is the next.

DuneCreature's picture

Chemtrails - Geo Engineering, Weather Control And The Chinese

Well gee, guess what, farming depends on the weather.

Farmers are largely at the 'mercy' of the weather too. Control the weather and you can control the farmer. You can own the farm if you can control the weather long and hard enough.

Crop failure insurance can be had but multiple crop failures will put a farmer upside down in an unrecoverable condition.

That will put the farm up for auction at fire sale pricing.

Guess who's buying?


Live Hard, Better Learn To Speak Mandarin Farm Boys And Farm Girls, Die Free

~ DC v4.0

RagaMuffin's picture

How long between China's 1933 debt moment and their WWII moment? The US 2000 tech crash to 9/11 ............

bahaar's picture

Middle income trap.

FearedDevil's picture

One only needs to watch - China is leading it