Beijing Lied Again: Goldman Finds Chinese FX Outflows Are Accelerating, Hitting 4 Month Highs

According to official PBOC data released two weeks ago, the Chinese foreign exchange stockpile rose by $24 billion in May, the fourth consecutive month of increases, taking it to $3.056 the highest level this year, easing concerns about ongoing capital flight and preventing a self-fulfilling prophecy of capital outflows prompting more capital outflows. There is just one problem: China appears to have lied again.

Based on a separate gauge released overnight, which tracks onshore FX settlement as well as cross-border RMB flows, what happened in May was the opposite of what the PBOC reported as net renminbi outflows accelerated to $21 billion, up from $13 billion in April, and the highest monthly capital flight in 5 months. And, as Goldman writes, "the persistence of FX outflows might have contributed to the recent shift in the authorities’ CNY management strategy" and will certainly explain last month's unexpected second revision to the Yuan fixing mechanism.

What is just as concerning, according to the revised FX flow calculation methodology, China has not had a single month of FX inflows since its mid-2015 Yuan devaluation as shown in the chart below.

Goldman explains:

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 May remained low at US$4.0bn (vs. US$2.8n in Apr). This is composed of net outflow of US$7.4bn via net outright spot transactions and net inflow of US$3.4bn via net freshly-entered forward transactions.
  • Another SAFE dataset on “cross-border RMB flows” shows that net flow of RMB from onshore to offshore rose to US$17.1bn in May (vs. US$10.0bn in Apr). The PBOC reportedly relaxed to some degree the restrictions on outbound RMB flow in mid-April. This might have contributed to the increase in RMB outflow.

Our preferred gauge of underlying flow therefore suggests a total net FX outflow of US$21bn in May (US$4.0bn from net FX demand onshore plus US$17.1bn in FX outflow routed through the CNH market). Exhibit 1 shows our FX flow measure.


While the underlying flow picture has remained much better than last year, the persistence of net FX outflow (even as USD/CNY was broadly stable) might have been one reason for the recent shift in the authorities’ CNY management strategy. In particular, the abrupt step-appreciation in the CNY two weeks ago might be partly intended to stem any entrenched speculative outflow pressures. Also, the introduction of the counter-cyclical factor in the CNY fixing mechanism could potentially allow the authorities to increase their CNY support through “signaling” rather than only through actual FX sales.

Exhibit 1: Our measure of FX outflows rose moderately to US$21bn in May

If Goldman's take is accurate, and in the past this calculation has proven to be far more accurate than the official monthly reserve data from the PBOC, it has implications for not only the future value of the Chinese currency - considered by many China's fulcrum security - which is now artificially stronger due to "fake data", but also for the Chinese economy, because if Beijing is resorting to outright misreporting on an dataset that can be easily double-checked, it would suggest that the turmoil inside China's financial system is far greater than what is officially reported. The good news is that for now at least, the discrepancy between the official data and the calculated outflow remains relatively subdued.

Goldman's take would certainly explain the relentless bid for bitcoin, which this morning has rebounded over 20% from yesterday's "crash" lows.

Finally, if Chinese reserves are still being drained, then the recent Bloomberg "trial balloon" that China is "ready to buy more Treasuries as the Yuan stabilizes" was merely an attempt by Beijing to get a better price into which to sell US TSYs as it seeks to offset the capital flight.


Xena fobe Stuck on Zero Fri, 06/16/2017 - 10:39 Permalink

Flip a coin? Here in just one area of So Cal, the Chinese are buying properties at a furious pace to tear down for high density retail and residential development.  My guess in a 5 sq mile area, 20 or 30 projects under construction currently.  Once complete, all housing units are bought by new Chinese and all retail is occupied with Chinese.  This has been going on for 20 years. Those supposed currency controls either leak like a sieve or it is official policy to use favored citizens to act as buyers to dump dollars. 

In reply to by Stuck on Zero

Let it Go Fri, 06/16/2017 - 07:26 Permalink

I'm under the impression outflows have not stopped and continue at a strong pace. Do not underestimate the influence of money fleeing and leaking out of China on the world economy. The Chinese are even rushing to but companies outside their country. I see much of this as a way for those in China to hedge their bets and at the same time get money out of the country.The Chinese economy is being propped up by a stack of newly printed money. In a world where money flows across borders at the press of a button, it doesn't matter which major central bank is adding money to the system the effect is the same. Today money printed and injected into the economy of any country drives markets higher across the world by distorting demand and prices.Those who doubt the power of cross-border money flows need only look to Vancouver Canada which has been forced to implement a foreign buyer tax in an effort to halt the rise in housing prices inflated by "hot money" from China. Toronto's housing market has also gone crazy with prices soaring 33% from the prior year. For more on just how much China is expanding its money supply see the article below.

mily Fri, 06/16/2017 - 07:32 Permalink

in the other news, s&p futures have been expiriencing straight horizontal line since 23:00 yesterday, BB cannot be tigher than that

new game Fri, 06/16/2017 - 07:39 Permalink

hot money chasing bubbles. lol. opportunity knocks again.hey you dumb fuk, i got some real estate for sale in vancoooover. need some "tender" lovng fool with lotsa cash. that be you? sign here...

NewNeo new game Fri, 06/16/2017 - 07:45 Permalink

HaHaHaHa! They're not dumb! You wont a fuk or spoon wiph yar flied lice?!China is the real economic weapon of mass destruction! They're not dumb, they're buying as many real assets with their BS currency. What happens when the locals dont have a place to live and some arrigant dumb ass Chinaman is in their family home? 

In reply to by new game

NewNeo new game Fri, 06/16/2017 - 07:55 Permalink

I agree, but the chinese are far more belliigerent than the Japanese. I do remember the Japanese buying up a lot of property around the world, and if my memory serves me correctly, interest rates were sky high at the time.The China bubble is going to get really nasty though! A lot of people of going to die!

In reply to by new game

NewNeo Fri, 06/16/2017 - 08:01 Permalink

Actually, if people did some research, they'd see that the West and China have been here before. It's called the anti-Chinese act! 1940 or there around if I remember correctly.

scoutshonor Fri, 06/16/2017 - 07:49 Permalink

Unlike the rock solid, totally truthful, unimpeachable data released by--well, every other country in the world.  Not defending China--but what is the reported unemployment figure in the U.S.?Exactly.

Money_for_Nothing Fri, 06/16/2017 - 08:16 Permalink

China is preparing for war. Chief Executives of large companies are being secretly arrested. Anyone still invested in China is going to lose that investment. And it doesn't matter if you are a Chinese citizen or a citizen of some other country. Gone with no compensation. Beijing isn't even going to give you a war bond.

US industry is going to boom.

PrivetHedge Fri, 06/16/2017 - 11:04 Permalink

Perhaps it makes sense: China and the world can only survive if the petro-dollar is destroyed: which means dumping the dollar and anything connected with America.Once isolated America's dollar will hit hyperinflation and the war machine will be forced to stop.

Too-Big-to-Bail Fri, 06/16/2017 - 12:47 Permalink

Man, that's a tough one of who to believe -- China or Goldman Sachs!Both are totally agenda-driven without feeling any anchor to the truth, only how persuasive they can appear

sinbad2 Fri, 06/16/2017 - 18:24 Permalink

Is this factoring in the fact that China bought $4 billion in gold so far this year, via Hong Kong?Of course it also imports directly, and has its own domestic production.

Charvo Fri, 06/16/2017 - 22:45 Permalink

It makes sense.  I just checked the Bank of China website.  They are paying out 0.60% for a 12 month term deposit.  Are you kidding me?  Who the heck would want less interest for a non-liquid currency vs the USD which is paying out over 1% for a 12 month CD at many banks according to   China better raise interest rates to make it more enticing for residents to keep their money in yuan.  That's also a reason why China has rampant real estate inflation.  They basically have a massively negative real rate of return on bank deposits.