China Capital Outflows Were as High as $39B in July

Outflows spooking markets have been slow this year, but July marks the highest month in six

A teller counts yuan banknotes in a bank in Lianyungang, East China's Jiangsu province on August 11, 2015. Donald Trump and his advisors have for a long time accused China to be an unfair trader and currency manipulator. STR/AFP/Getty Image

Everything seems to be well in China, maybe except for the rising defaults. The currency is up almost a percent against the dollar for the last month and foreign exchange reserves only decreased by $4.1 billion, to $3.2 trillion. Long gone are the months of triple digit reserve drain during the turn of the year.

But underneath the surface the picture may not be as rosy.

“Our preliminary estimate of People’s Bank of China (PBoC) reserve operations suggests that net capital outflows amounted to some $39 billion in July, marking the largest net outflows in six months,” write the Institute of International Finance (IIF) in a report. 

There's a difference between having enough reserves to meet normal balance-of-payments needs and adequate reserves to defend resident-driven capital flight in a panic.

— Worth Wray, STA Wealth Management