Since President Trump was elected as the President of the United States, capital outflows from China have accelerated, reaching a record high of $45.7 billion in November this year. Experts believe that despite the Chinese Communist Party’s efforts to reverse the economic downturn, the chances of success are slim.
According to data released by China’s State Administration of Foreign Exchange on December 16th, in November 2024, China’s securities investment income was $188.9 billion, while expenditures were $234.6 billion. Therefore, the outflow of capital from China’s securities investment reached a staggering $45.7 billion in that month, setting a new record for the highest single-month outflow in history.
In theory, the funds leaving China include investments from overseas as well as Chinese residents purchasing foreign securities. However, due to strict foreign exchange controls on Chinese residents, it is not easy for funds to leave China through banking channels, so the vast majority of this capital is believed to be from overseas investments.
Goldman Sachs, a Wall Street investment bank, stated in a report to clients that “the large-scale foreign exchange outflows mainly come from cross-border renminbi transactions, potentially involving renminbi outflows through securities investment channels.”
Since late September, the Chinese authorities have introduced a series of major measures to boost the economy, including interest rate cuts, reserve requirement reductions, and lowering mortgage rates.
As a result of this news, the Chinese stock market surged, with the Shanghai and Shenzhen 300 Index rising from around 3,350 points to 4,250 points, an increase of over 900 points, nearly 28%. However, the consecutive large-scale capital outflows in the past two months indicate that overseas investors have no confidence in the Chinese government’s policies. The sudden surge in the Chinese stock market has instead become a time for them to flee.
Li Hengqing, an economist at the US Institute for Information and Strategic Studies, believes that Trump’s tariff stick left a strong impression on the world. Now that he has been re-elected, the world will realign, and investors need to prepare for the changes that may occur in the United States at least during Trump’s four years in office.
He told Epoch Times, “On the one hand, people believe that Trump will take radical fiscal measures to boost the US economy, while on the other hand, beyond his tariff threats, people are more concerned about the chronically tight Chinese economy. This is an important reason for the massive capital outflows.”
Expectations of a depreciation of the renminbi could also lead to capital outflows. If Trump imposes tariffs on Chinese goods after taking office, the Chinese authorities are likely to devalue the renminbi to offset the impact of tariffs. During the first US-China trade war in 2018, the Chinese authorities used this method. While devaluing the renminbi can enhance export competitiveness, one of its negative consequences is the massive outflow of capital.
The difference in borrowing costs between China and the US has widened to the highest level in over a decade, putting pressure on the renminbi.
On December 13th, China’s benchmark 10-year government bond yield fell by 0.05 percentage points to 1.77%, hitting a historic low. Meanwhile, the yield on the US 10-year government bond slightly increased to 4.33%, widening the gap to over 2.5 percentage points. This is the largest gap since 2011, according to data from the London Stock Exchange.
On December 9th, the Central Political Bureau of the Chinese Communist Party held a meeting in Beijing to discuss economic work for the next year. The meeting emphasized the implementation of a “moderately loose” monetary policy, a “more proactive” fiscal policy, and strengthening “extraordinary countercyclical adjustments.”
Over the past thirty years, the Chinese Communist Party has only adopted a “moderately loose” monetary policy once after the global financial crisis in 2008, which was implemented from November 2008 until the end of 2010. At that time, then-Premier Wen Jiabao approved a 4 trillion yuan stimulus package to boost domestic demand. This was only the central level, and the complementary funds from local governments may have been several times higher, estimated to stimulate an economic volume of at least 10 trillion yuan.
However, the current situation is completely different from back then. In 2008, China’s GDP was 31.4 trillion yuan, with the broad money supply (M2) balance standing at 47.5 trillion yuan by the end of the year. Last year, China’s GDP had reached 126 trillion yuan, with the M2 balance reaching 312 trillion yuan by the end of November this year. These figures represent a fourfold and 6.5-fold increase, respectively, compared to 2008.
Li Hengqing stated that given the current economic scale, even if the People’s Bank of China injected 20 trillion yuan, it would probably not be enough to rescue the situation. Additionally, with all industries in China now facing a downturn and the people having no confidence in the future, the circumstances are vastly different compared to those in the past.
Li Hengqing further noted, “Where does the money for the market rescue come from? Most of the quantitative easing measures have been used up, leaving only money printing as the last resort. In this aspect, the Chinese Communist Party has no constraints; Xi Jinping can print as much money as he wants. Unanchored money printing will ultimately lead to severe inflation.” He added, “China is currently facing deflation, but it may turn into inflation later on. Once mismanaged, it could lead to an irreversible situation.”