China: BOP remains under pressure – Nomura

Research Team at Nomura, suggests that China’s balance of payments (BOP) data receive less attention because they are not so timely but they are comprehensive, and the latest Q3 data are revealing.

Key Quotes

“Unlike monthly FX reserve data, BOP foreign assets are already adjusted for FX valuation effects, so subtracting it from the current account and net FDI can provide a cleaner read of the residual (i.e., mostly portfolio and other capital flows plus errors and omissions). On our calculations, the residual more than doubled from -USD68.1bn in Q2 2016 to -USD176.1bn in Q3, the largest outflow of so-called hot money since the -USD215.1bn outflow in Q4 2015.

Another interesting feature in the latest BOP data is the fact that both net FDI outflows and the tourism services deficit increased to new record highs in Q3. Combined, net FDI and tourism flows totalled -USD94.3bn, up from -USD80.5bn in Q2, and it is starting to be a sizable offset to the merchandise trade surplus. It is hard to gauge the extent but, as our Asia FX strategist, Craig Chan, has warned, some of this offset could be disguised capital flight by Chinese residents.

The underlying pressure on China’s BOP continues; perhaps it is a sign that China’s residents are not convinced by the three straight quarters of stable real GDP growth of 6.7%, and are instead worrying about the sacrifice to the quality of growth.”