By KARL RUSSELL and KEITH BRADSHER
April 7, 2016
China’s Exodus of Capital
As the economy slips, individuals and companies have been
pulling money out of the country en masse, although there
are signs the government has started to staunch the flood.
How Bad Is It?
Over the last year and a half, individuals and companies have moved about $1 trillion out of China as the economy weakens. Those outflows have been partly offset by money coming in from the trade surplus.
There are various methods, legal and otherwise, to move capital out of China.
Finding “Smurfs”
Chinese citizens who want to send more than $50,000 — the allowable limit — out of the country can arrange for relatives or friends to exchange money for them.
Buying overseas businesses
Businesses and wealthy families can spend up to $1 billion on acquisitions with minimal scrutiny.
Buying life insurance
By buying a policy denominated in American dollars, and paying for it in Chinese renminbi, individuals can take money out of the country, although China is tightening limits on this.
Tinkering with trade
A company that exports goods declares only a fraction of the goods’ value to the authorities. An overseas buyer wires money to China for that fraction and puts the rest of the money into the exporter’s overseas bank account. This dubious practice is known as underinvoicing exports.
What Is the Problem?
The outflows have put significant pressure on the Chinese renminbi, eroding financial confidence and forcing the government to dip into its reserves to shore up the currency. The reserves increased modestly in March, suggesting a small improvement in the situation.
5.5
renminbi to one dollar
6.0
Renminbi
6.5
APRIL 7:
6.46
Scale is inverted
7.0
7.5
8.0
8.5
’00
’02
’04
’06
’08
’10
’12
’14
’16
JUNE ’14:
$4.0 trillion
$4.0
trillion
China’s foreign
currency reserves
3.5
MARCH ’16:
$3.21 trillion
3.0
2.5
2.0
1.5
1.0
0.5
0
’00
’02
’04
’06
’08
’10
’12
’14
’16
The New York Times|Sources: Reuters; The People’s Bank of China, via CEIC Data
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