China: Anomalies in China’s Current Account Data

In recent years, China’s balance of payments data published by SAFE have exhibited
anomalies in at least two components of the current account: 1) the trade surplus shown
in the balance of payments data is far lower than the surplus shown in China’s customs
data and the level implied by data from China’s trading partners, and 2) Chinese
residents’ investment income has declined despite an increase in interest rates abroad.
The result of both of these anomalies is a lower reported current account surplus, and
their emergence has coincided with a dramatic fall in net errors and omissions. Treasury
cannot currently assess with high confidence the causes of these anomalies, but seeks to
highlight their potential impact on the current account balance reported by the world’s
second largest economy. Treasury encourages the Chinese authorities to provide greater
clarity on these issues.

https://home.treasury.gov/system/files/136/June-2024-FX-Report.pdf

[December 12 2024 problems will ripple out into world markets ]

Such deep issues in an economy this large will ripple out into world markets. For example, the recent weakness in global crude oil prices is closely tied to the sputtering economy in the People’s Republic, the world’s largest importer of oil.

[December 5 2023 weak demographics will decline growth to 3.5% by 2030, Moody’s said. ]

Ratings agency Moody’s downgraded its outlook on China’s government credit ratings to negative from stable, expecting Beijing’s support and possible bailouts for distressed local governments and state-owned enterprises to diminish China’s fiscal, economic and institutional strength.

Moody’s though retained China’s “A1” long-term rating on the country’s sovereign bonds, while expecting China annual GDP growth to slow to 4% in 2024 and 2025 and average 3.8% from 2026 to 2030. Structural factors including weak demographics will drive a decline to 3.5% by 2030, it said.

December 4 2023 confidence in domestic economy wanes and yuan weakens ]

A report from the Petersen Institute for International Economics this week showed that not only are Western businesses no longer investing as much in China, many are actively selling out where they can. Chinese statistics, to put it mildly, are not always completely transparent. Even so, it calculates that at least $100 billion in foreign investment left China in the first three quarters of this year. “For the first time ever, [foreign companies] are large net sellers of their existing investments to Chinese companies and repatriating the funds” produced by such sales,

[November 26 2023 ]

Zhongzhi Enterprise Group declared itself insolvent Wednesday with its arrears estimated at nearly $66 billion, according to a letter to investors cited by local media.

During China’s real estate boom, many developers used Zhongzhi to finance their projects.

The company managed assets worth more than $141 billion, according to investment bank Nomura.

[November 14 2023 ]

Foreign companies are not reinvesting their profits in China, rather they are moving the money out of the country. “We aren’t seeing many companies pulling out of China. Many of the big multinational firms have been in the market for decades, and they’re not willing to give up market share that they’ve spent 20, 30 or 40 years cultivating. But in terms of new investment, in particular, we are seeing a reassessment.”

[November 1 2023 ]

Foreign investment into China turned negative for the first time on record in the third quarter.

[October 31 2023 ]

In the first half of 2023, there was a shortfall of $19.5bn in China’s balance of payments data, which economists use as an indicator of capital flight, although the true value of money unofficially leaving the economy may be higher. There are now about 1,100 single-family offices – firms set up to manage the wealth of a specific family – in Singapore, up from 50 in 2018, with around half of that boom estimated to come from Chinese clients.

[October 24 2023 ]

Capital outflows from China rose sharply to $75 billion in September, the biggest monthly figure since 2016,

China in September witnessed $19.4 billion of outflows under foreign exchange sales and settlement business for customers, the largest monthly outflows since late 2016, the State Administration of Foreign Exchange (SAFE) data showed.

Moreover, monthly cross-border receipts and payments recorded a deficit of $53.9 billion, the biggest since February, 2016.

[August 31 2023 ]

The yuan CNY=CFXS has lost more than 5% against the U.S. dollar so far this year, including a 2% drop this month alone, and is being dragged even lower by foreign capital flowing out of the weakening economy amid persistent weakness in the yuan whose yields are falling as China eases monetary policy to support sputtering economic activity.

[August 8 2023 ]

Concerns about the Chinese economy continued on Tuesday morning after China published weak trade numbers. In a report, the country’s exports plunged by 12.4% in July, higher than the median estimate of 5.6%. They had dropped by 6.8% in the previous month.

Imports, on the other hand, dropped by 14.5% in July, also lower than the expected decline of 9.8%. Like exports, imports slipped by 6.4% in June. China’s imports and exports have shrunk in the past nine straight months. Despite the decline in volume, the trade surplus jumped to $80 billion.

These numbers mean that the Chinese economy is not improving since trade plays an important part. Worse, other components of the country like real estate are also underperforming as well. It is also on the verge of moving into a deflation era where prices are falling.

As a result, China has started implementing some stimulus packages in a bid to save the economy. Most of these measures are meant to stimulate consumer spending, which forms a core part of the economy.

[July 6 2023 ]

Chinese investors are increasingly turning to offshore dollar deposits and Hong Kong insurance as confidence in the domestic economy wanes and the yuan weakens, Reuters reports.

Offshore Rush

Individuals are driving this surge, reflecting deep-seated concerns about China’s economy as its anticipated pandemic recovery stalls. The outflows could exert further pressure on the yuan, which is currently at eight-month lows.

Hong Kong insurance has long been a channel for Chinese buying assets abroad, offering more protection than what’s available on the mainland. Insurers such as AIA Group, Prudential, and Manulife have all reported a jump in business from mainland investors.

China’s sudden shift from a zero-tolerance COVID-19 policy to living with the virus has unsettled many, leading to pessimism about the economy. The burst of insurance buying in Hong Kong reflects a gloomy domestic outlook and worries about an uncertain future.

Yuan Fragility

The rush to Hong Kong insurance comes as the yuan appears increasingly fragile. A similar, larger outflow in 2016 led Beijing to tighten capital controls and curtail insurance buying. If the current rush continues, it could risk prompting similar policy tightening from Beijing.

[March 13 2021 Foreign Persons Involved in the Erosion of the Obligations of China ]

Update to Report on Identification of Foreign Persons Involved in the Erosion of the Obligations of China Under the Joint Declaration or the Basic Law

Wang Chen
You Quan
Cao Jianming
Zhang Chunxian
Shen Yueyue
Ji Bingxuan
Arken Imirbaki
Wan Exiang
Chen Zhu
Wang Dongming
Padma Choling
Ding Zhongli
Hao Mingjin
Cai Dafeng
Wu Weihua
Deng Zhonghua
Li Jiangzhou
Edwina Lau
Li Kwai-Wah
Frederic Choi Chin-Pang
Kelvin Kong Hok Lai
Andrew Kan Kai Yan
Tam Yiu-Chung
Sun Wenqing, AKA Sun Qingye