Economic Observer Online
August 1, 2012
By Ouyang Xiaohong (欧阳晓红)
Translated by Tang Xiangyang
Original article: [Chinese]

China’s international capital account – a measure of the net change in a country’s public and private international investment - had a $20.3 billion deficit in the first half of 2012.

The measure indicates that money is flowing out of the country, but also suggests holdings of foreign assets have risen.

“China did have some capital outflow in the first half of the year,” said an unnamed official with the State Administration of Foreign Exchange (SAFE). “But that doesn’t equate to a large scale foreign capital flight.”

The official attributed the capital account deficit to the fact that institutions and individuals are holding more foreign currency. According to data published by SAFE on July 31, China’s international reserve assets increased by $62.9 billion.

The official said that the outflow of major foreign investment, including direct, securities, and equity investments rose by only 15 percent. Meanwhile, capital outflow that is under foreign direct investment but controlled by domestic institutions increased 74 percent.

“Due to the current market environment, domestic enterprises and individuals are turning from selling dollars to buying,” the official said. “In financial terms, they might have yuan debt but hold dollar assets.” 

“With the slow recovery of the world economy and the turbulent international financial situation, major emerging economies are all suffering capital outflow and their currencies are depreciating,” he added. “China can’t be an exception.”