How Bad Is It?
Over the last year and a half, individuals and companies have moved about $1 trillion out of China, as investors have begun to lose faith in the economy and sought better returns elsewhere. Those outflows have been partly offset by money coming in from the trade surplus.
China’s net inflows and outlows
Net financial capital flow
How the Money Is Getting Out
There are various methods, legal and otherwise, to move capital out of China.
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 purchasing 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 are putting significant pressure on the Chinese renminbi, eroding financial confidence and forcing the government to dip into its reserves to shore up the currency.