China's Capital Outflows Are Suddenly Soaring Again... And Why This Is Great News For Cryptos

Officially, China has maintained quasi-capital controls for years: on paper, no individual is allowed to move more than $50,000 out of the country in any given year while Chinese companies can exchange yuan for foreign currencies only for approved purposes.

UnofficiallyChina's capital controls had been skirted for years, leading to massive capital outflow from the nation over the past decade, leading to such aberrations as massive luxury housing bubbles in places such as Vancouver, London, New York and San Francisco, and seemingly middle-class Chinese politicians and oligarchs sporting Swiss bank accounts funded in the hundreds of millions (or billions).

In fact, as we detailed in 2017, Beijing has an interesting way of dealing with capital outflows. While they closely monitor many methods, they don’t actively pursue shutting them down. They often watch from afar, and if capital reserves aren’t impacted, or their reputation isn’t damaged, they allow them to continue. The PBoC announced in 2017 they were going to deploy a massive anti-money laundering framework, designed to further halt capital outflows. As we said at the time, we’ll have to see if they were serious, or if this was just to win reputation points with international countries.

Well, two years later, we may have the answer. After an apparent lull in outflows, potentially driven by the reforms cracking down on capital flight, there are signs that China is facing an exodus of cash once again...

Amid all the headlines about China's surplus with the US and the ongoing trade tensions, there was a message hidden in China's trade data...

It is that capital outflow probably accelerated significantly last month. It's a reminder of why the PBOC would probably be reluctant to let the yuan decline significantly. That would encourage even further outflows and risk a vicious circle.

While China's total imports fell 7.6% in dollar terms from a year earlier, its purchases from Hong Kong surged 106%.

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