In August, a large amount of RMB flowed into Hong Kong, bringing Hong Kong’s RMB deposits close to 1 trillion yuan (about $139 billion). On the other hand, the foreign exchange fund of Hong Kong, which is used to stabilize the Hong Kong dollar exchange rate and serves as the government’s fiscal reserve, experienced a drop of HK$35.8 billion (about US$4.57 billion) in August.
One financial analyst pointed out that these figures indicate a large outflow of capital from Hong Kong.
Figures released by the Hong Kong Monetary Authority (HKMA) on Sept. 29 showed that the amount of renminbi (RMB) deposits in Hong Kong increased by 6.0 percent to 962.5 billion yuan (US$134. 0 billion) at the end of August, and total RMB remittances for cross-border trade settlement amounted to 1,122.2 billion yuan (about US$156.1 billion) in August, up 9.7 percent month-on-month from 1,022.1 billion yuan (about US$142.3 billion) in July.
Hong Kong is the largest settlement market for offshore RMB, accounting for roughly 70 percent of offshore RMB settlements.
Since the offshore RMB is outside the regulatory system of China’s Central Bank and is freely exchanged with foreign currencies to form an offshore exchange rate, which will affect the onshore RMB exchange rate to varying degrees, the massive outflow of RMB will inevitably put pressure on the Central Bank’s control of the RMB exchange rate.
Recently, a large number of mainland Chinese have flocked to Hong Kong to open bank accounts.
The Epoch Times noticed that by 8 a.m. on Sept. 7, there was already a long queue of mainland tourists outside the Bank of China branch in Kowloon, Hong Kong.
Ms. Zhu from the Chinese city of Xi'an told The Epoch Times that she had come to Hong Kong specifically to open an account, hoping to earn high interest rates by depositing her money in a Hong Kong bank. She planned to deposit 100,000 Hong Kong dollars (about $12,800) this time.
Ms. Zhu explained that the Chinese authorities have been lowering interest rates while interest rates outside the country have been rising. At the same time, the Chinese yuan has been depreciating.
“The current economic environment (in the mainland) is bad, so we should take measures (to protect our assets). We therefore decided to switch to other currencies,” she said.
She also revealed that Chinese visitors to Hong Kong are allowed to bring 20,000 yuan in cash through customs each time, and many people take advantage of this rule to take RMB out of the country.
In a recent interview with the Chinese-language Epoch Times, Hong Kong senior banker Victor Ng Ming Tak said that behind the outflow of mainland capital to Hong Kong must be the involvement and manipulation of Chinese Communist Party officials who selectively give the “green light” to the capital outflow. Economic analyst Law Ka-chung predicts that the flow of capital between China and Hong Kong will be subject to stricter regulations in the future, and it will then be more difficult to transfer funds overseas.
In addition, data from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) showed that the RMB’s share of international settlement payments rose to a record high of 3.47 percent in August, up from 3.06 percent in July, and ranked fifth among all currencies, narrowing the gap with the Japanese yen (JPY), which ranked fourth at 3.68 percent.
On the same day, the HKMA also reported a massive drop in the Exchange Fund in the month of August.
The agency announced that as of Aug. 31, the total assets of the Exchange Fund were HK$3,975.7 billion (about US$50.8 billion), a decrease of HK$35.8 billion (about US$4.57 billion) from the end of July. Of this, foreign currency assets dropped by HK$22.8 billion (about US$2.91 billion) and Hong Kong dollar assets dropped by HK$13 billion (about US$1.65 billion).
The HKMA explained that the decrease in foreign currency assets was mainly due to withdrawals from fiscal reserves and market price revaluation of investments, but this decline was partially offset by increased interest income from investments. The decrease in Hong Kong dollar assets was mainly attributed to the market price revaluation of Hong Kong stocks.
The U.S. Federal Reserve has raised interest rates several times in recent years, and the interest rate differential will affect capital outflows.
Wang Jian, a senior financial analyst, said that given the large inflow of RMB into Hong Kong and China’s sluggish foreign trade, the record high amount of RMB settlement payments and the declining foreign exchange funds in Hong Kong “undoubtedly means that Hong Kong is experiencing an outflow of funds, and the scale is huge.”
